GUANGZHOU, China – China has approved Ant Group to operate a consumer finance company, a key positive step in the forced restructuring of its business just months after regulators curbed its record listing.
Ant will hold a 50% stake in the new entity and contribute 4 billion Chinese yuan ($ 625.93 million) to the share capital, the China Banking and Insurance Regulatory Commission said Thursday.
Six other shareholders will contribute 4 billion yuan and hold the remaining 50%. The company will be registered in Chongqing City, in the southwest, with a total registered capital of 8 billion yuan.
In particular, the company will be able to grant personal loans and issue bonds. The consumer finance company will also house the credit activities of Ant, Huabei and Jiebei. These are essential for the business and were previously big revenue drivers.
In November, Ant Group, which is controlled by billionaire Jack Ma, was due to conduct a record-breaking $ 34.5 billion IPO in Shanghai and Hong Kong. But Chinese officials ended the listing two days before it was supposed to happen, citing regulatory concerns.
The People’s Bank of China ordered Ant Group to come up with a turnaround plan in December and approved a series of measures in April. One of them includes Ant Group becoming a financial holding company, which could mean the company will become more regulated like a bank.
While this has yet to happen, setting up and operating a consumer finance company is an important first step for Ant Group in resolving its regulatory issues.
“This is a positive sign for Ant because it means that regulators still support Ant being in the lending business – except that she is now in a position to regulate them.” Kevin Kwek, managing director and senior analyst at Bernstein, told CNBC. “The other bright spot is that this indicates progress for Ant in restructuring its business in accordance with regulatory requirements.”
“Under the guidance of regulators, Ant will work with other shareholders of Chongqing Ant Consumer Finance Co., Ltd. to meet the needs of consumers and continue to improve the quality of financial services and risk management capabilities,” said a spokesperson for the Ant group. said Thursday.
A logo of the Ant Group is pictured at the headquarters of the company, a subsidiary of Alibaba, in Hangzhou, Zhejiang province, China on October 29, 2020.
Song of Aly | Reuters
Before the IPO was suspended, Chinese regulators began to worry about tech companies offering banking-like services such as loans and their impact on financial stability.
Ant Group offers loans underwritten independently by the company’s partner financial institutions, which include around 100 banks. In the six-month period ended June 30, 2020, that represented about 39% of its revenue, the bulk of it. Loans were previously offered through Huabei and Jiebei products.
Now Ant will have to make it clear which financial institution is making the loan, an anonymous CBRIC official told the 21st Century Business Herald. Any loan through the Huabei and Jiebei brands will have to be partially taken out by Ant’s consumer finance company, according to the report. A person familiar with the case, who preferred to remain anonymous, confirmed to CNBC that the details of the report were correct.
Ant’s scrutiny sparked a regulatory attack on Ma’s empire, which included a $ 2.8 billion fine in an anti-monopoly investigation into e-commerce giant Alibaba.