Jack Ma
Photographer: Scott Eells
Photographer: Scott Eells
Two months ago, global investors were on the verge of a windfall from what would have been the world’s first major public offering. Now, a return on the hundreds of millions of dollars invested The Ant Group Co. in danger.
China has ordered Ant to rethink its fintech businesses – spanning from wealth management to consumer credit lending and insurance – and return to the roots as a payment service.
While the central bank’s statement on Sunday was brief in detail, it threatens the growth and most profitable operation of billionaire Jack Ma’s online financial empire. The management stopped calling for no direct bankruptcy on the company, but stressed the importance of Ant “understanding the need to modernize the business” and they asked him to create a plan and timetable as soon as possible.
Photographer: Marlene Awaad / Bloomberg
Authorities also supported Ant for sub-par corporate governance, disregard for regulatory requirements, and engaging in regulatory negotiations. The central bank said Ant used its leadership to ban competitors, hurting the interests of hundreds of millions of users.
Ant said in response that he had set up a special team to comply with regulators’ requests. It will maintain business operations for consumers, voting not to raise prices for consumers and financial partners, while putting in place risk controls.
The company, which is based in Hangzhou, needs to set up a separate financial property company to comply with regulations and ensure it has sufficient capital, regulators said.
Anatomy of a Chinese financial powerhouse
The giant Jack Ma has moved towards technology and services
Sources: Ant Group, Goldman Sachs, data compiled by Bloomberg
Here are some scenarios from investors and analysts on what the restructuring would look like:
Calmly
Optimists say regulators are simply reaffirming their right to oversee the country ‘s financial sector, warning internet companies not to expect major change.
Beijing could be trying to set an example out of Ma’s Ant, the largest among several new but diffuse fintech platforms. Such breakdowns in the past have dealt with short-term shocks to companies, usually leaving them without a loss. Social media giant Tencent Holdings Ltd., for example, became an explicit target in a campaign to combat child game slavery in 2018. Although its shares hit, they eventually overcame levels. high full-time.
Ant Affinity, Alibaba Group Holding Ltd., likewise, gained investor reassurance after a short-term sale following allegations from authorities on everything from unfairly pushing buyers to turning a blind eye to fares on their e-commerce platform.
“I do not think regulators are considering breaking up Ant, as fintech in China does not have monopoly status,” said Zhang Kai, an analyst at market research firm Analysys Ltd. act focuses on Ant but also sends a warning to other Chinese fintech companies. “
Some see it as an opportunity for Ant. With the industry as a whole overseeing tighter controls, Ant has more resources to deal with the challenges as a business leader, Zhang said.
Bad
A more likely outcome would be a move by regulators to break up Ant Group. That would damage the shareholder structure, and damage the fastest growing businesses.
Valued at around $ 315 billion before the first public offering was canceled, Ant corral attracted investments from the world’s largest funds. These include: Warburg Pincus LLC, Carlyle Group Inc., Silver Lake Management LLC, Temasek Holdings Pte and GIC Pte.
The company was backed by global investors when it was valued at around $ 150 billion in the last round of fundraising in 2018. A. break up the return on their investments would be uncertain, with the timeline for an upcoming IPO in November now pushed to the future.
The government could ask Ant to take away their more lucrative jobs in wealth management, credit lending and insurance, downloading them to a financial property company that needs a more rigorous investigation.
“The emerging reality is that Chinese regulators are adopting similar regulation to banks and fintech players,” said Michael Norris, manager of research and strategy at AgencyChina, a Shanghai-based advisory group.
Ant’s payroll business alone leaves much less to the imagination. While the service handled $ 17 trillion of transactions in one year, online payments have largely been at a loss. The two largest mobile payment operators, Ant and Tencent, have heavily subsidized the businesses, using them as a gateway to win over customers. To make money, they introduced the payment services to cross-sell products including wealth management and credit lending.
“Ant’s growth potential will be completed with a focus back on its payment services,” said Chen Shujin, head of financial analysis at Hong Kong at Jefferies Financial Group Inc. “On the mainland, the online payments industry is in full swing and Ant’s market share has largely been reached. ”
Nightmare
The worst case scenario is that Ant would forget its money management, credit and insurance businesses, halting its activity in the units that serve half a billion people.
Its wealth management business which includes Yu’ebao platform which sells mutual funds and money market money, accounted for 15% of the revenue.
Credit tech, which includes Ant’s Huabei and Jiebei units, was the largest revenue driver for the group, accounting for 39% of the total in the first six months of this year. It lent to about 500 million people.
Read more about the business units of Jack Ma’s Ant Group
That result would be reinforced by the idea that Chinese leaders have become embarrassed by swagger tech billionaires and want to teach them a lesson in killing their businesses – even if it means short-term pain time for the economy and markets.
China’s private sector has maintained a delicate relationship with the Communist Party for decades, and it has recently been recognized as being at the heart of the country’s future. Many commentators have dismissed the recent crackdown on fintech companies to Ma’s comments made at a conference in October, when he denounced attempts to get back into the firing range as visually impaired. short and old-fashioned.
Between them, Alibaba, Ant and Tencent were above market capitalization of nearly $ 2 trillion in November, surpassing state-owned behemoths such as Bank of China Ltd as the most valuable companies in the country.
The trio has invested billions of dollars in hundreds of mobile and internet companies, gaining king status in the world’s largest smartphone and internet market with consumers.
China Internet Regulators
Tencent, Alibaba and Ant Group have invested in a wide range of Chinese startups spanning domains from social media to online commerce
Sources: Bloomberg, CB Insights, Crunchbase
“It’s finally the Communist Party and everyone in China. She is in control of everything, ”said Alex Capri, a Singapore-based researcher at the Hinrich Foundation. “There is nothing that the Communist Party of China has no control over and anything that appears to be moving out of orbit in any way is going to withdraw very quickly,” he said. , says “we can expect to see more of that. ”
– Supported by Lulu Yilun Chen, Coco Liu, Jun Luo, and Colum Murphy