China’s Ant Group is mulling the creation of a new consumer loan unit that would allow it to continue making loans throughout the country while complying with new Chinese banking regulations.
Creation of the new unit would be part of a much larger overhaul of the financial technology company and subject to approval by Chinese authorities, who pulled the plug on the company’s massive initial public offering late last year, according to Bloomberg.
Ant Group had planned to go public for $35 billion, which would have made it the largest IPO in market history. Ant was co-founded by billionaire Jack Ma, who also co-founded eCommerce giant Alibaba.
Ant Group had $263 billion in outstanding consumer loans as of June 2020. The company is looking to move its consumer loan business into a new consumer lending unit that would be able to operate throughout China, Bloomberg reported, citing unidentified sources.
Ant currently has two lending units that handle consumer loans, Huabei and Jiebei. Under the new regulations, the units would be limited to operating in China’s Chongquing municipal region. To operate beyond Chongquing, Ant would be required to apply for new licenses. By moving its consumer loans into a new unit, the company would likely be able to continue its lending nationwide without obtaining new licenses, Bloomberg said.
While it is still unclear to what degree the Chinese government will try to control Ant’s booming loan business, the company will likely have to meet higher capital requirements, even with a restructuring of its consumer loan business. Regulators could also compel Ant to divest its minority interests in certain other financial institutions, Bloomberg said.
Bloomberg said other backers of the new consumer unit include Nanyang Commercial Bank Ltd., China TransInfo Technology Corp. and Contemporary Amperex Technology Co.
On Tuesday (Jan. 5), The Wall Street Journal reported that Chinese regulators want Jack Ma to share consumer credit data collected from Ant Group, which he has largely resisted doing for years.
Regulators have long viewed Ma as a potential source of unfair competitive advantage over smaller lenders or even bigger banks through the Alipay app, which is used by over a billion people, WSJ wrote. Alipay has a good amount of data on user spending, borrowing and bill and loan payment habits and histories.
Utilizing that massive amount of information, Ant Group has made loans to half a billion people, and has worked with 100 commercial banks on supplying most of that funding, the Journal said. Those arrangements have seen the banks taking most of the risks of borrowers defaulting, with Ant taking the profits as a middleman.
Authorities want to overturn that model, due to what they say is potential for danger to the country’s financial system. They want to make Ant utilize more of its own funds and also break what they say is the company’s monopoly over data.
Meanwhile, Ant Group’s plan to put its online financial businesses into a holding company to satisfy regulators could slash the firm’s valuation, require billions of dollars in reserves and force Ant to retain big shares of loans it currently sells off.
“Its growth would slow a lot,” Francis Chan, Bloomberg Intelligence analyst said.
China’s central bank told the media on Dec. 29 that Ant was drafting plans to put its lucrative securities, insurance, consumer lending and other financial businesses into a holding company that would comply with the nation’s banking regulations. Ant had previously avoided those rules by arguing that it’s not a bank, but a technology company that works with banks to facilitate financial services.