China allows Jack Ma’s Ant Group to operate a consumer finance company

GUANGZHOU, China — China has given approval to Ant Group to operate a consumer finance company, a key positive step in the forced restructuring of its business just months after regulators curbed its record listing.

Ant will hold a 50% stake in the new entity and contribute 4 billion Chinese yuan ($625.93 million) in registered capital, the China Banking and Insurance Regulatory Commission said Thursday.

Six other shareholders will contribute 4 billion yuan and will hold the remaining 50%. The company will be registered in the southwest city of Chongqing with a total registered capital of 8 billion yuan.

The company may, among other things, grant personal loans and issue bonds. The consumer finance company will also house the credit businesses of Ant, Huabei and Jiebei. These are critical to the business and were previously important revenue drivers.

In November, Ant Group, which is controlled by billionaire Jack Ma, was set to complete a record $34.5 billion IPO in Shanghai and Hong Kong. But Chinese authorities shut down the listing two days before it was supposed to happen, citing regulatory concerns.

The People’s Bank of China ordered Ant Group to come up with a recovery plan in December and approved a series of measures in April. One of them includes Ant Group becoming a financial holding company, which could mean the company becomes regulated more like a bank.

Although it hasn’t happened yet, the creation and operation of a consumer finance company is an important first step for Ant Group to solve its regulatory problems.

“This is a positive sign for Ant as it means regulators are still in favor of Ant being in the lending business – except now it is able to regulate them.” Kevin Kwek, managing director and principal analyst at Bernstein, told CNBC. “The other bright spot is that it indicates progress for Ant in restructuring its business in line with regulators’ requirements.”

“Under the guidance of regulators, Ant will work with other shareholders of Chongqing Ant Consumer Finance Co., Ltd. to meet consumer needs and continue to improve financial service quality and risk management capabilities,” said a spokesperson for the Ant group. said Thursday.

A logo of Ant Group is pictured at the company’s headquarters, a subsidiary of Alibaba, in Hangzhou, Zhejiang province, China October 29, 2020.

Aly Song | Reuters

Before the IPO was suspended, Chinese regulators were beginning to worry about tech companies offering banking-like services such as lending and the impact on financial stability.

Ant Group offers loans underwritten independently by the company’s partner financial institutions, which include around 100 banks. In the six months ended June 30, 2020, this represented approximately 39% of its revenue, the largest portion. Loans were previously offered through Huabei and Jiebei products.

Now Ant will have to make it clear which financial institution is providing the loan, an unnamed CBRIC official told the 21st Century Business Herald publication. Any lending through the Huabei and Jiebei brands will need to be partially guaranteed by Ant’s consumer finance company, according to the report. A person with knowledge of the matter, who preferred to remain anonymous, confirmed to CNBC that the details in the report were correct.

Ant’s scrutiny sparked a regulatory attack on Ma’s empire, which included a $2.8 billion fine as part of an anti-monopoly probe into e-commerce giant Alibaba.

Previous Blockchain Trade Finance Firm Komgo Raises $29M - Ledger Insights
Next Financial giant State Street launches digital finance division