Jack Ma's Ant Group to be financial holding firm in forced revamp

BEIJING (BLOOMBERG) – Jack Ma’s Ant Group will drastically revamp its business, bowing to demands from Chinese authorities that want to rein in the country’s fast-growing Internet giants.

Ant will now effectively be supervised more like a bank, a move with far-reaching implications for its growth and ability to press ahead with a landmark initial public offering that the government abruptly delayed late last year.

The overhaul announced by regulators and the company on Monday (April 12) will see Ant transform itself into a financial holding company, with authorities also directing the firm to eliminate unfair competition in payments, increase oversight of how that business fuels it crucial consumer lending operations, and ramp up data protections. The firm will also need to cut the outstanding value of its money-market fund Yu’ebao.

The directives come as China’s regulators pledge to curb the “reckless” push of technology firms into finance and crack down on monopolies online. The twin pillars of Ma’s empire – Ant and e-commerce giant Alibaba Group Holding – have been at the centre of the increased scrutiny, sending a clear message to the country’s largest corporations and their leaders to fall in line with Beijing’s priorities.

Several government agencies, including the People’s Bank of China, and regulators overseeing the banking and securities sectors met with Ant to dictate the changes.

Regulators also slapped a record US$2.8 billion (S$3.75 billion) fine on Alibaba this month after an anti-trust probe found the e-commerce company abused its market dominance.

“The darkest hour for Alibaba has passed, but I wouldn’t say so for Ant Group,” said Dong Ximiao, chief researcher at Zhongguancun Internet Finance Institute. “The latest announcement clarified the framework for Ant’s restructuring, but the tone is still harsh and some of the requirements are tougher than expected. I don’t think the overhang is removed for Ant investors at this stage.”

While the revamp leaves Ant’s main businesses intact, regulators are making its harder for the firm to exploit synergies that allowed it to direct traffic from its payments service Alipay – which has a billion users – to other financial services including wealth management, consumer lending and even on-demand neighborhood services and delivery.

Authorities will now require Ant to cut off any improper linking of payments with other financial products including its Jiebei and Huabei lending services. In a statement, Ant said it would fold those units into its consumer finance arm, apply for a license for personal credit reporting, and improve consumer data protection.

“Ant’s growth prospects just became a lot more challenging, given it will be much more difficult to capitalize on its scale,” said Mark Tanner, founder of Shanghai-based consultant China Skinny. “These growth challenges, in addition to the wider concerns about the tech sector regulators, makes their IPO value and attractiveness a shadow of what it was.”

Ant chairman Eric Jing promised staff last month that the company would eventually go public. Bloomberg Intelligence analyst Francis Chan has estimated the firm’s valuation may drop about 60 per cent from the US$280 billion it was pegged at last year given the rule changes being contemplated in areas including payments.

Payments Focus

Changes to its payments business were among the top priorities outlined by regulators on Monday, with Ant pledging to return the business “to its origin” by focusing on micro-payments and convenience for users.

Earlier this year, China proposed measures to curb market concentration in online payments, which Ant and rival Tencent Holdings have transformed with their ubiquitous mobile apps that are used by a combined one billion people.

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The central bank said in draft rules that any non-bank payment company with half of the market in online transactions or two entities with a combined two-thirds share could be subject to antitrust probes.

If a monopoly is confirmed, the central bank can suggest that cabinet impose restrictive measures including breaking up the entity by its business type.

Mobile payments are only part of what contribute to online transactions, but they have become the most important platform in China, fueling growth in other financial services.

Investors are also awaiting final rules aimed at curbing online consumer lending, that were unveiled late last year.

Given all the changes still down the track, an Ant IPO remains “far, far away,” said Zhongguancun Internet Finance Institute’s Dong.

“What we have now is a clear roadmap for Ant to restructure its sprawling businesses, and what’s certain is that if it revives the IPO in the future, it will be a listing of the entire financial holding company,” said Chen Shujin, Hong Kong-based head of financial research at Jefferies Financial Group Inc.

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