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Jack Ma’s ant is planning a major overhaul in response to Chinese pressure



Ant Group Co. plans to become a financial holding company controlled by China ‘s central bank in response to pressure to fully comply with financial regulations, according to insiders.

Chinese regulators recently told Ant, which is controlled by billionaire Jack Ma, to become a financial holding company entirely, subjecting it to stricter capital requirements, people said. In response, Ant responded to authorities with a restructuring plan, they said.

The plan represents a significant turnaround in digital payment, which in recent years has tried to cast its image as a financial service provider and to emerge as an Internet technology company, which has helped it command high ratings. Before its initial public offering was withdrawn in November, Ant was on track to go public with a valuation of $ 300 billion north, well above the market capitalization of the world̵

7;s largest banks.

Defining Ant entirely as a financial holding company was not something previously envisaged by the company’s executives and stakeholders. In its listing prospectus last year, Ant said it intended one of its subsidiaries to become a financial holding company and to have a licensed financial business such as asset management and consumer lending. In doing so at the group level, Ant will be subject to a number of regulations similar to those run by banks and will affect its growth and profitability.

The restructuring plan, which is still under discussion, could be finalized before China goes on a one-week lunar New Year’s holiday in mid-February, officials said.

Any final plan will need to be signed by the Financial Stability and Development Committee, a super-regulator chaired by Deputy Prime Minister Liu He, two people said.

A spokesman for Ant declined to comment. The People’s Bank of China, the China Banking and Insurance Regulatory Commission and the State Council Information Service did not comment.

Ant owns Alipay, a payment and lifestyle app with more than one billion users in China. It has processed more than $ 17 trillion in digital payment transactions in the year to June 2020, granted unsecured short-term loans to about 500 million people and sold many insurance policies, mutual funds and other investment products.

Ant’s payment business and other financial services are subject to certain regulations, but the group as a whole has long been spared the strict capital requirements and rules to which banks, insurers and other traditional financial institutions have been subjected.

At the Ant Group headquarters in Hangzhou, China, in October.


Photo:

song / Reuters

In December, four Chinese regulators convened a meeting of Ant executives and asked the company to correct what they said were business problems. In a statement afterwards, Pan Gunsheng, PBOC’s deputy governor, punished Ant for “contempt” for compliance and “engaging in regulatory arbitrage” without giving specific details.

Mr Pan said regulators had made five demands to Ant, telling him to return to his roots in payment, protect personal data in his credit business, set up a financial holding company, improve corporate governance and exercise more discipline. in its securities and assets. management business.

Placing all of Ant’s businesses under a financial holding company would give regulators control over all of its activities and eliminate the potential for regulatory arbitrage, according to one person familiar with the plan.

The new structure will make it difficult for Ant to exchange its entire portfolio among its constituent units, which has allowed it to cover risks by moving them to more regulated parts of the conglomerate, said Eswar Prasad, a former head of the International Monetary Fund and a professor of trade. politics and economics at Cornell University.

“Financial regulators were concerned that Ant’s regulatory arbitrage had allowed the company to provide a rosy picture of its overall financial condition and to hide the financial risks posed by its aggressive expansion into new lines of business,” he said.

Ant has formed a task force led by CEO Simon Hu to work with regulators on how to adjust their business. The company has appointed a chief compliance officer to oversee day-to-day compliance and restructuring work.

China’s top financial regulators have recently hinted that they are pleased with the progress made in Ant. Asked on Tuesday during a virtual meeting of the World Economic Forum whether Ant would revive its IPO, PBOC Governor Yi Gang said that if laws and regulations are followed, “you will get the result.”

He said consumers are happy with Alipay, but Ant needs to resolve issues such as data privacy complaints before it gets back on track.

Ant is working to split customer data, which is currently shared between its business units, to introduce protocols that are common in banks, according to insiders. Alipay has accumulated a wealth of data on people’s spending habits and payment methods and uses them to provide loans and sell investment products to its customers. This is a key reason why the company has been able to grow rapidly and diversify its business in recent years.

China’s new rules for financial holding companies, published last fall, apply to large conglomerates with two or more financial corporations. They came into force on November 1, and the companies concerned have one year to apply for the status of regulated financial holding company to PBOC.

The new measures for financial holding companies include regulatory requirements on shareholders, governance, sources and use of financing, risk management and corporate governance. They also require the infusion of additional capital into financial subsidiaries where necessary.

If Ant is overhauled, the company’s revenue and profit growth could be significantly reduced. Ant may also need to raise significant capital to meet regulatory requirements, and the company’s high rating – which was based on its profitability and growth potential – could also be hit. Ant has already set out to reduce loan limits for individual users of its digital lending services, a sign that it is downsizing its business to comply.

It is unclear how the restructuring would affect Ant’s non-financial businesses, such as the development of blockchain technology, digital lifestyle services and artificial intelligence technologies, areas that the company previously identified as growth drivers.

Write to Jing Yang at Jing.Yang@wsj.com

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