Ant Group gets green light to run consumer finance company after forced restructuring ordered by Beijing
(AF) Chinese billionaire Jack Ma’s Ant Group has been approved to run a consumer finance company, which marks a key step of Ant’s forced restructuring that will give authorities more oversight over the company’s business.
Ant’s consumer finance firm will be called Chongqing Ant Consumer Finance Co Ltd, the China Banking and Insurance Regulatory Commission said on Thursday. It will be able to issue personal loans and financial bonds, sell insurance policies, and borrow from Chinese financial institutions, among other things.
Ant will contribute 4 billion yuan ($625.93 million) in registered capital and own 50% of the new company.
Another six shareholders will contribute the same amount in total and hold the remaining 50%. Hong Kong-based Nanyang Commercial Bank will hold a 15% stake, and China Huarong Asset Management will own about 5% of the company. Taiwan’s Cathay United Bank will also hold a 10% share. Contemporary Amperex Technology Co Ltd, a main battery supplier to Tesla and Nio, will own 8% in the company.
Ant Group was set to carry out a record $34-billion initial public offering in Shanghai and Hong Kong last November, but Chinese authorities pulled the plug on 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 rectification plan in December and approved a series of steps in April. The steps include turning Ant itself into a financial holding firm so that it would be regulated more like a bank, and folding its two lucrative micro-loan businesses Jiebei and Huabei, into a new consumer finance firm.
“Ant must complete the branding restructuring of Huabei and Jiebei within six months after its consumer finance firm starts to operate,” the Chinese business newspaper 21st Century Business Herald reported on Thursday, citing a regulator at the CBIRC.
After the restructuring, the brand names ‘Huabei’ and ‘Jiebei’ will only be used for Ant’s own consumer credit products. Consumer loans issued by other financial institutions and sold over Ant’s platform will no longer fall under these brand names, the report said.
“The two micro-loan entities of Ant should exit from the market in an orderly manner after the business restructuring,” it added.
Analysts said the approval of Ant’s consumer finance firm is a positive step towards making Ant’s business compliant with regulations. However, compliance also means more restrictions.
Previously, Ant Group’s two lucrative micro-loan businesses were able to use their advantages in data and risk models to earn not only a share of the revenues with banks, but also the customer data and brand loyalty. They only contributed about 1-2% of the funding in a “loan-assisting” cooperation model with banks.
Going forward, the “loan-assisting” model will likely go away, and instead Ant will have to provide at least 30% of funding for joint loans with banks, Yuan Zheqi, an analyst from Ping An Securities said.
“The ‘loan-assisting’ model will evolve into a new type of service in which Ant helps drive traffic and analyze data for the banks, while the banks design the loan products and determine the pricing,” Yuan said.
“The banks will be able to display their own brand names, which will be beneficial to their brand building,” an executive from a consumer finance firm said.
Need to bolster capital base
The new consumer finance unit would need to further bolster its capital base to meet regulatory requirements on capital adequacy.
According to China’s online lending rules, Ant needs to increase its registered capital of the Chongqing consumer finance firm to 51 billion yuan ($8 billion), up from the current 8 billion yuan ($1.3 billion), according to the analysis of Ping An Securities.
“The online lending rules ask that internet companies provide at least 30% of funding for loans. Based on the balance of Huabei and Jiebei loans as of the end of the first half of 2020 revealed in its prospectus, which was 1.7 trillion yuan ($266 billion), Ant’s consumer finance firm needs to have at least 51 billion yuan (8 billion) of capital,” Yuan said.
Still, analysts from Zhongtai Securities expect Ant’s consumer finance firm to be the largest of its kind in China, with a 40% market share.
The new unit is expected to record a net profit between 19-23 billion yuan ($3 billion to $3.6 billion) on revenues of 770 billion yuan ($120 billion) this year, assuming that the net profit margin is 25-30%, Dai Zhifeng, an analyst from Zhongtai Securities said.