Ant looks to fold its financial units into a holding company

Jack Ma’s besieged Ant Group is planning to fold its financial operations into a holding company that could be regulated more like a bank, according to people familiar with the situation, potentially crippling the growth of its most-profitable units.

The fintech giant is planning to move any unit that would require a financial licence into the holding company, pending regulatory approval, said the people, who asked not be named because the matter is private. The plans are still under discussion and subject to change, the people said. Ant declined to comment.

The operations that Ant is looking to fold into the holding company include wealth management services, consumer lending, insurance, payments and MYbank, an online lender in which Ant is the largest shareholder, the people said. Under the financial holding company structure, Ant’s businesses is likely to be subject to more capital restrictions, potentially curbing its ability to lend more and expand at the pace of the last few years.

That said, the proposals suggests Ant would still be able operate in financial services beyond its payments business, quelling investor concern about how to interpret the central bank’s Sunday message when it asked Ant to return to its roots as a payments provider.

Domestic consumption

“This means China is still trying to encourage domestic consumption, and they need platforms such as Ant to help with consumer loans,” said Wang Zhen, a Shanghai-based analyst with UOB-Kay Hian Holdings. “The key is that consumer lending shouldn’t be over-leveraged.”

SoftBank rose 4.5%, the most in more than two weeks. Alibaba rose 5.7% in Hong Kong, the most since Nov. 5. The Japanese company is the largest shareholder in Alibaba, a major backer of Ant.

Chinese regulators also told Ant to devise a plan to overhaul its business, the latest in a series of steps to rein in Ma’s online finance empire. While it stopped short of directly asking for a break-up of the company, the central bank emphasised Ant needed to “understand the necessity of overhauling its business” and come up with a timetable as soon as possible.

“Its growth would slow a lot,” said Francis Chan, a Bloomberg Intelligence analyst in Hong Kong. The valuation of the non-payment businesses, including wealth management and consumer lending, could be slashed by as much as 75%, he said.

Ant was last month poised for a public listing that would have valued it at more than $300bn, before regulators intervened and scuttled the IPO.

Ant held $11bn in cash and equivalents up to June, according to its IPO filing. The company said in its prospectus in October that it would use its subsidiary Zhejiang Finance Credit Network Technology to apply for the financial holding licence.

Under rules that took effect in November, non-financial companies which control at least two cross-sector financial institutions are required to hold a financial holding licence. Rules on how financial holding companies could be regulated are still under deliberation.

Capital injection

Chan estimates that Ant needs to inject at least $11bn of new capital just for its credit-lending business. That calculation is based on draft rules that require Ant to co-fund 30% of loans, with a maximum asset leverage of five times.

Ant is planning to leave its digital lifestyle business — the services that link users with food deliveries, on-demand neighbourhood services and hotel bookings — out of the financial holding company, one of the people said. Ant will still be the parent of all those operations, the person added.

Ant is seeking more guidance from regulators on what structure will be acceptable and may change its plans based on that feedback, that person said.

Ant’s valuation could fall to below $153bn, according to Chan, similar to where it stood two years ago after a fundraising round.

Bloomberg