China approves Jack Ma’s Ant Group to operate consumer finance firm

GUANGZHOU, China – China has given Ant Group approval to operate a consumer finance company, a key positive step in the forced restructuring of its business just months after regulators held back its record listing.

Ant will own a 50% stake in the new entity and contribute 4 billion Chinese yuan ($ 625.93 million) in equity capital, the China Banking and Insurance Regulatory Commission said on Thursday.

Another six shareholders will contribute 4 billion yuan and will own the remaining 50%. The company will be registered in the southwestern city of Chongqing with a total registered capital of 8 billion yuan.

The company may grant personal loans and issue bonds, among other things. The consumer finance company will also house the Ant, Huabei and Jiebei loan businesses. These are critical to the business and were previously great revenue drivers.

In November, Ant Group, which is controlled by billionaire Jack Ma, was set to carry out a record $ 34.5 billion initial public offering in Shanghai and Hong Kong. But the Chinese authorities canceled the listing two days before it was supposed to happen, citing regulatory concerns.

The People’s Bank of China ordered Ant Group to draw up a rectification plan in December and approved a series of steps in April. One of them includes Ant Group becoming a financial holding company, which could mean that the company is regulated more like a bank.

While that hasn’t happened yet, creating and operating a consumer finance company is a great first step for Ant Group to solve its regulatory problems.

“It’s a positive sign for Ant, as it means that regulators still support Ant being in the loan business, except now it can regulate them.” Kevin Kwek, Bernstein’s managing director and senior analyst, told CNBC. “The other positive is that it indicates progress for Ant in restructuring its business as required by regulators.”

“Under the guidance of regulators, Ant will work with other shareholders of Chongqing Ant Consumer Finance Co., Ltd. to meet consumer needs and continue to improve financial services quality and risk management capabilities,” said a Ant Group spokesperson. he said Thursday.

An Ant Group logo is displayed at the headquarters of the company, an Alibaba subsidiary, in Hangzhou, Zhejiang province, China, on October 29, 2020.

Aly Song | Reuters

Before the IPO’s suspension, Chinese regulators were concerned about tech companies offering bank-like services such as loans and the impact on financial stability.

Ant Group offers loans written independently by the company’s partner financial institutions, which include around 100 banks. In the semester ended June 30, 2020, this represented around 39% of its revenue, the majority of it. Loans were previously offered through Huabei and Jiebei products.

Ant will now be asked to clearly label which financial institution is making the loan, an anonymous CBRIC official told the 21st Century Business Herald. Any loans through the Huabei and Jiebei brands will have to be underwritten in part by Ant’s consumer finance company, according to the report. A person with knowledge of the matter, who preferred to remain anonymous, confirmed to CNBC that the details of the report were correct.

The scrutiny over Ant started a regulatory assault on Ma’s empire that included a $ 2.8 billion fine in an antitrust investigation by e-commerce giant Alibaba.

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