Beijing is accelerating plans to bring Jack Ma’s Ant Group more closely under its control as part of a “rectification” drive that would make it difficult for one of China’s richest men to fully rebuild his online empire.
Ant’s consumer lending unit and other fast-growing parts of the financial technology group will be carved out into a new financial holding company to be regulated by the People’s Bank of China, according to people briefed on discussions between the central bank and the company.
The reorganisation would bring it directly under the thumb of the regulators Mr Ma has long brushed up against, with his public critiques irking authorities and officials at China’s state-owned banks. The PBoC issued a public rebuke of Ant at the weekend, calling on the company to be overhauled and accusing it of “turning a blind eye to compliance requirements”.
One former regulator said: “The best solution is to break up Ant into a finance unit for its online lending, brokerage and insurance businesses that will be under full regulatory oversight, and a less regulated technology and data unit.”
Mr Ma has long needled officials with his ambitions to reshape the country’s state-led financial system.
“If the banks won’t change, we will change the banks,” he said about a decade ago. “We want to shake up state-owned enterprises.”
More recently, he accused China’s banks of harbouring a “pawnshop mentality” in public remarks delivered shortly before Ant’s $37bn initial public offering was cancelled by regulators in November.
Ant has reshaped its business in response to regulatory directives several times in recent years. But Pan Gongsheng, PBoC deputy governor, made it clear in an interview transcript published on Sunday that bigger changes were coming. Ant “must integrate its development into the overall plan of the country’s development” he said.
China’s state-owned lenders have long complained that their online competitors have reaped an unfair advantage by being subject to less stringent regulations.
The plan under consideration for Ant involves shifting its financially-licensed businesses — which include its payments, lending, insurance and wealth management ventures — into a new holding company, the people familiar with the matter said. However, they cautioned that the discussions with regulators were continuing.
Bloomberg News first reported the plan.
Ant may also need to raise capital to satisfy PBoC guidelines, which along with requirements on capital adequacy, risk control and governance, make financial holding companies more akin to banks than tech companies.
The plan could significantly reduce how much investors think Ant is worth, with the group valued at up to $300bn prior to the IPO being scuppered.
“Ant has repeatedly emphasised it’s a technology company and the market valued it as one, but if it’s remade into a financial holding company, it will become a financial institution at heart, and the market will need to revalue it,” said He Zhisong, a lawyer at Zhong Lun, a law firm. “To head off antitrust concerns, Ant may also need to spin off some of its business lines.”
Tighter regulation for sprawling financial companies has been in the works since at least last year, when they were first outlined by the PBoC. In anticipation of the new rules, Ant designated its Zhejiang Finance Credit Network Technology unit to be its primary holding vehicle.
“Ant has many financial licences but for now it’s not clear how business in different sectors get mixed up,” said Zhao Xijun, a finance professor at Renmin University in Beijing. “Regulators are requiring Ant to explain [its structure] and ensure each business complies with the regulations in its sector.”
Concerns that tighter regulations could curb the fintech sector’s rapid growth have increased since regulators suspended Ant’s IPO, given the subsequent outpouring of official, state media and public criticism of the group.
China’s competition regulator also announced last week that it was commencing an anti-monopoly investigation into Alibaba, Mr Ma’s ecommerce company, and took evidence from its headquarters in Hangzhou, in the country’s eastern Zhejiang province.
A lawyer familiar with the antitrust process said Alibaba would likely be fined an amount equal to 1 or 2 per cent of its previous year’s sales, or about Rmb7bn ($1.1bn), for abusing its dominant market position.
“The government doesn’t really want to kill Alibaba, they just want to teach it who’s boss,” the lawyer said.
Alibaba’s shares have fallen by almost a quarter since Ant’s IPO was pulled.
Bloomberg data shows that the net worth of Mr Ma, who has been a common fixture at the top of China’s rich list in recent years, has fallen by nearly $10bn to $50.9bn over the same period.
Additional reporting by Sun Yu, Xinning Liu and Nian Liu in Beijing