China ordered Ant to re-examine its fintech businesses (ranging from wealth management to consumer loans and credit insurance) and to return to its roots as a payment service.
While Sunday’s central bank statement was sparse in specific matters, it poses a serious threat to the growth and more lucrative operations of billionaires. Jack MaThe online finance empire. Regulators stopped directly asking for the company’s bankruptcy, but stressed that it was important for Ant to “understand the need to review his business” and told him to present a plan and schedule as soon as possible.
Authorities also denounced Ant for inferior government to parity, contempt for regulatory requirements, and participation in regulatory arbitration. The central bank said Ant used its dominance to exclude rivals, harming the interests of its hundreds of millions of consumers.
Ant said in response that he will create a special team to meet the demands of regulators. It will maintain users ’business operations, promising not to raise prices for consumers and financial partners, while intensifying risk controls.
The Hangzhou-based company must set up a separate financial company to comply with the rules and make sure it has enough capital, regulators added.
Here are some of the scenarios for investors and analysts on how the restructuring could be:
Mild
Optimists say regulators only claim their right to oversee the country’s financial sector, sending a warning to Internet companies with no intention of drastic changes.
Beijing could try to make an example of Ma’s Ant, the largest among a number of new but ubiquitous fintech platforms. Previous repressions of this nature have caused short-term blows to companies, leaving them mostly unharmed. Social media giant Tencent Holdings Ltd., for example, became a prominent goal of a campaign to combat addiction to games among children in 2018. Although their actions were successful, they eventually recovered to all-time highs.
Ant Affiliate, Alibaba Group Holding Ltd. similarly regained investor confidence after short-term sales following allegations by authorities of everything from unfairly squeezing traders to turning a blind eye to counterfeits of its e-commerce platform.
“I don’t think regulators are thinking about breaking Ant, as no fintech company in China has a monopoly status,” said Zhang Kai, an analyst at market research firm Analysys Ltd. “The event is not only aimed at Ant, but a warning to other Chinese fintech technology companies.”
Some see it as an opportunity for Ant. With industry in general facing tougher oversight, Ant has more resources to meet the challenges as an industry leader, Zhang said.
Bad
A more worrying outcome would be if regulators moved to separate Ant Group. This would complicate the shareholder structure and harm the company’s fastest growing business.
Valued at about $ 315 billion before its initial public offering came to a halt, Ant recouped investments from the world’s largest funds. Among them: Warburg Pincus LLC, Carlyle Group Inc., Silver Lake Management LLC, Temasek Holdings Pte and GIC Pte.
Global investors backed the company when it was valued at about $ 150 billion in its last round of fundraising in 2018. A breakdown would make the return on its investments uncertain, with the timetable for a IPO which was to be due in November. the distant future.
The government could ask Ant to put aside its most lucrative operations in wealth management, credit lending and insurance, discharging them to a financial holding company that will face tougher control.
“The emerging reality is that China’s regulators are adopting similar regulation for banks and fint technology agents,” said Michael Norris, director of research and strategy for the China-based consulting agency.
Only Ant’s payment business leaves much less to the imagination. Although the service handled $ 17 trillion transactions in one year, online payments have caused huge losses. The two largest mobile payment operators, Ant and Tencent, have heavily subsidized companies, using them as a gateway to gain users. To make money, they took advantage of payment services to sell products crosswise, including wealth management and credit lending.
“Ant’s growth potential will be limited with the focus back on its payment services,” said Chen Shujin, head of China-based financial research at Hong Kong-based Jefferies Financial Group Inc. “On the continent, the online payments industry is saturated and Ant’s market share has practically reached its limit.”
Malson
The worst case scenario would be for Ant to give up its money, credit and insurance management businesses, stopping its operations at units that serve a billion people.
Its wealth management business, which includes the Yu’ebao platform that sells investment funds and money market funds, accounted for 15% of revenue.
Credit technology, which includes the Huabei and Jiebei units of Ant, was the group’s main revenue driver, contributing 39% of the total in the first six months of this year. He gave loans to about 500 million people.
This result would be based on the idea that Chinese leaders have been frustrated by the deception of technology billionaires and want to teach them a lesson by killing their businesses, even if that means short-term pain for the economy and the markets.
China’s private sector has maintained a delicate relationship with the Communist Party for decades and has only recently been recognized as a central element of the nation’s future. Many commentators have attributed the recent crackdown on tech companies to the statements Ma made at a conference in October, when he considered attempts to curb expanding terrain to be short-sighted and outdated.
Among them, Alibaba, Ant and Tencent commanded a combined market capitalization of nearly $ 2 trillion in November, surpassing state-owned giants such as Bank of China Ltd. as the most valuable companies in the country.
The trio has invested billions of dollars in hundreds of nearby mobile and internet companies, making it the king of the largest smartphone and Internet market for users.
“The Communist Party is the end and the end in China. He controls everything, ”he said Alex Capri, a Singapore-based researcher at the Hinrich Foundation. “There is nothing that the Chinese Communist Party does not control and anything that looks like it is spinning out of its orbit will somehow withdraw very quickly,” he said, adding that “we can expect to see more of this.”