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Ant Group restructures into a financial holding company, explores IPO revival

Written by Wency Chen Published on     3 mins read

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Ant Group’s valuation is estimated to fall by more than half after the business overhaul.

Ant Group and Chinese financial regulators have reached an agreement on the firm’s restructuring plan that will put the fintech giant’s businesses, including food delivery, blockchain, and mobile payments, into a financial holding company, Bloomberg reported on Wednesday, citing unnamed sources.

The restructuring plan, which is Ant’s latest move in its required overhaul, could be officially announced before the start of the Chinese New Year holiday on February 11. It will result in the company being subject to capital requirements similar to those for banks, as the country’s regulators are drawing up other specific guidelines for fintech players in order to increase supervision of the sector.

“Over the past few years, Ant has positioned itself as a ‘tech-fin’ company rather than fintech, insofar that they were providing the technology, but not necessarily the underlying funding,” said Zennon Kapron, the director of financial technology consulting firm Kapronasia. “This will change with the new structure as Ant will need to operate as a bank in terms of capital requirements and financing,” Kapron told KrASIA.

Ant Group, e-commerce powerhouse Alibaba’s (HKEX: 9988; NYSE: BABA) fintech arm and the operator of Alipay, announced in December that it would establish a working group to revamp its business and follow regulators’ requirements. The company’s highly anticipated initial public offering (IPO) was suspended two days before it was scheduled to take place on November 5.

In the meantime, Ant and at least a dozen banks are pulling back from the online consumer lending business, as regulators intend to curb online loans in recent months, Bloomberg reported today. Banks in Zhejiang province have been instructed to cut their exposure to Ant via joint loans on the firm’s Jiebei and Huabei platforms—both are Ant’s consumer loan products, while lenders in Shanghai and Shandong province have taken  similar actions.

The measures on Ant, the dominant company in the fintech sector, signals an industry-wide clampdown. “If the Ant restructuring is any indication of the government’s view of future regulation, we may be in store for a relatively slow period of innovation and growth in the financial industry. Increased regulations mean increased compliance costs and lower returns,” Kapron mentioned.

According to the Bloomberg report, Ant is exploring opportunities to revive its IPO plan. Alibaba’s CEO Daniel Zhang said on the earnings call with investors after releasing its latest earnings report on Tuesday that “Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. We will further update the market when the investigation is concluded.”

Ant’s valuation is estimated to fall to below USD 108 billion from a USD 280 billion pre-money valuation ahead of its failed IPO, Bloomberg reported citing Francis Chan, a senior analyst at Bloomberg Intelligence in Hong Kong.

Meanwhile, Alibaba posted better-than-expected revenue of RMB 221.1 billion (USD 33.9 billion) in its December quarter, compared to a market consensus of RMB 214.2 billion (USD 33.1 billion). For the reported quarter, the e-commerce titan’s Non-GAAP net income was RMB 59.2 billion (USD 9.1 billion), of which Ant Group contributed USD 735 million.

For many years, China’s regulators took a “wait-and-see” approach to the sector, which allowed for a significant amount of innovation and progress but also brought potential risks to the traditional financial system. But the attitude has changed as big tech giants, like Ant Group and Tencent gradually gained a dominant position in the market. “At this point, it seems like Ant Group is making the changing that will satisfy the regulators, but it remains to be seen if there is additional regulation likely to come in the near future,” said Kapron.

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