Jack Ma’s Ant strikes agreement with China's regulators on overhaul

The fintech company will be treated in a similar manner to banks

FILE PHOTO: A logo of Ant Group is pictured at the headquarters of the company, an affiliate of Alibaba, in Hangzhou, Zhejiang province, China October 29, 2020. REUTERS/Aly Song/File Photo
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Ant Group and Chinese regulators have agreed on a restructuring plan that will turn Jack Ma’s fintech giant into a financial holding company, making it subject to capital requirements similar to those for banks.

The plan calls for putting all of Ant’s businesses into the holding company, including its technology offerings in areas such as blockchain and food delivery, people familiar with the matter said. One of Ant’s early proposals to regulators had envisioned putting only financial operations into the new structure.

An official announcement on the overhaul could come before the start of China’s Lunar New Year holiday next week, the people said, asking not to be identified discussing private information. Alibaba Group, which owns about a third of Ant, erased losses in Hong Kong trading on Wednesday after Bloomberg reported the agreement. Alibaba rose 3.5 per cent in New York.

Some market participants had been speculating Ant might be forced to spin off portions of its business, which now looks unlikely, said Shujin Chen, Hong Kong-based head of China financial research at Jefferies Financial Group.

Ant’s restructuring plan marks the first big step in what’s expected to be a lengthy overhaul process, as regulators draw up detailed capital requirements and other guidelines for companies that span multiple financial business lines.

China only introduced its framework for financial holding companies in September and many of the specifics are still being ironed out. While the rules will eventually provide more regulatory clarity for Ant, they’ll almost certainly force the company to slow the torrid pace of expansion that has made it China’s dominant fintech player and one of the world’s most valuable startups.

Ant is still exploring possibilities to revive its initial public offering, which was abruptly halted by regulators in November, one person familiar with the matter said. But given the financial holding company framework is so new, it’s unclear how long it might take for authorities to sign off on a listing.

Bloomberg Intelligence analyst Francis Chan estimates Ant’s valuation could drop to $108 billion. Ant fetched a $280bn pre-money valuation before its IPO was halted.

As part of the overhaul plans, Ant and at least a dozen banks are paring back their years-long cooperation on consumer lending platforms that fuel the spending of at least 500 million people in China.

Ant declined to comment. The People’s Bank of China, which oversees financial holding companies, didn’t immediately respond to a faxed request for comment.

Ant’s restructuring is part of a broader government campaign to increase supervision of the financial and technology sectors.

Regulators have in recent months targeted everything from health-care crowdfunding to consumer lending. In January, they proposed measures to curb market concentration in online payments, where Ant and Tencent are the biggest players.

The clampdown has fueled intense speculation over the status of Mr Ma, who co-founded both Ant and Alibaba. The e-commerce giant has also faced increased government scrutiny in recent months, becoming the target of an antitrust investigation in December.

Mr Ma’s appearance in a live-streamed video conference in January — after several months out of public view — has helped quell talk of worst-case scenarios for his business empire. Still, plenty of uncertainty remains: Even after Wednesday’s gain, Alibaba’s Hong Kong shares are trading about 15 per cent below their record high in October.