Jack Ma’s Ant Group will drastically reform its business, in response to requests from the Chinese government wanting to curb the country’s rapidly growing Internet giants.
Ant will now be more effectively scrutinized like a bank, a move that has far-reaching implications for its growth and its ability to drive with an initial public offering. a turning point that the government had abruptly delayed late last year.
The overhaul was outlined by regulators and the company on Monday will see Ant transform into a financial holding company, with authorities directing the company to open payment apps for Competitors, strengthen monitoring of how that business promotes critical consumer lending and develops data protection. It will also need to cut the outstanding value of its Yu’ebao money market fund.
The directives come as China’s regulators pledge to limit tech companies’ reckless push into the financial sector and crack down on online monopolies. The two pillars of Ma’s empire – Ant and e-commerce giant Alibaba Group Holding Ltd. – is the focus of increased scrutiny, sending messages to the country’s largest corporations and their leaders to align with Beijing’s priorities.
Several government agencies, including the People’s Bank of China, and the regulators that oversee the banking and securities sector have met with Ant to make the changes. Ant said in its statement, the company will plan growth “in the context of a national strategy” and ensure that it assumes more social responsibility.
Regulators also fined Alibaba a record $ 2.8 billion this month after an investigation against trust revealed the e-commerce company misused its market dominance. .
“The darkest hour for Alibaba is over, but I wouldn’t say the same to Ant Group,” said Dong Ximiao, head of research at Zhongguancun Internet Finance Institute. “The latest announcement clarifies the framework for Ant’s restructuring, but the tone is still harsh and some requirements are harder than expected. I don’t think the overhang is removed for Ant investors at this stage. “
While the reshuffle has left Ant’s key businesses intact, regulators are making it harder for the company to exploit the synergies that allow it to direct traffic from the bar service. Alipay payments – which have one billion users – go to other financial services including asset management, consumer lending and on-demand delivery and services.
Authorities are now asking Ant to cut off any unsuitable payment links for other financial products including loans Jiebei and Huabei. Ant said it would classify those units into its consumer finance arm, obtain personal credit reporting licenses, and improve the protection of consumer data.
Ant could add more credit loan options on Alipay instead of making Huabei the default or preference, Thomas Chong, Hong Kong-based analyst at Jefferies Financial Group Inc., wrote in a newspaper. report, adding that the synergy between Huabei and Yu’ebao may be affected.
“Ant’s growth prospects are getting a lot more difficult, as capitalizing on its scale will be much more difficult,” said Mark Tanner, founder of Shanghai-based consulting firm China Skinny. “These growth challenges, coupled with broader concerns about technology sector regulators, make the value and attractiveness of their IPO a shadow of it.”
Chairman Ant Eric Jing promised employees last month that the company would eventually be listed. Bloomberg Intelligence analyst Francis Chan has estimated the value of the company could fall by about 60% from the $ 280 billion it was pegged last year due to rule changes being envisaged in the envelope sectors. including payment.
The changes to the payments business are one of the top priorities outlined by regulators, and Ant is committed to bringing the business back to “its roots” by focusing on micro payment and user convenience.
Earlier this year, China proposed measures to limit the market’s focus on online payments, which Ant and rival Tencent Holdings Ltd. transformed by popular mobile apps used by more than 1 billion people.
The central bank said in its draft rules that any non-bank settlement company with half the market in online transactions or two institutions with two-thirds of the combined market share could suffer. antitrust investigation.
If the monopoly situation is confirmed, the central bank may ask the cabinet to impose restrictive measures including splitting the juridical person according to the type of business.
Mobile payments are only one contributor to online transactions, but they have become the most important platform in China, driving growth in other services.
Investors are also awaiting final regulations aimed at curbing online consumer lending, which was announced late last year.
With all the changes still going on, an Ant IPO is still “very far,” very far away, “said Dong of Zhongguancun Internet Finance Institute.
“PBOC’s statement emphasizes risk and correction, while Ant Group’s statement looks positive to investors,” said Shujin Chen, head of financial research at Jefferies. based in Hong Kong, written in a report. “Ant will be the first financial holder in China, a milestone in fintech regulation. Ant sees a clearer roadmap for restructuring, although some details are still unclear.