China set to fine Ant Group more than $1.38 billion, signalling revamp nears end: Sources

Ant’s fine would be the largest regulatory penalty imposed on a Chinese Internet company. PHOTO: REUTERS

HONG KONG - The Chinese authorities are poised to impose a fine of more than US$1 billion (S$1.38 billion) on billionaire Jack Ma’s Ant Group, said six sources with direct knowledge of the matter, setting the stage for ending the fintech company’s two-year long regulatory overhaul.

The People’s Bank of China (PBOC), which has been driving the revamp at Ant after the Chinese firm’s US$37 billion initial public offering (IPO) was scuttled at the last minute in 2020, is the regulator that is readying the fine, said five of the sources.

The central bank has been in informal communication with Ant about the fine over the past few months, said three of the sources. It plans to hold more discussions with other regulators about Ant’s revamp later in 2022 and announce the fine as soon as the second quarter of 2023, said a source.

A fine on Ant could help pave the way for the company to secure a long-awaited financial holding company licence, seek growth again, and eventually revive its plans for a public market debut.

Ant’s fine would be the largest regulatory penalty imposed on a Chinese Internet company since ride-hailing major Didi Global was fined US$1.2 billion by China’s cyber-security regulator in July.

The fintech firm’s affiliate, e-commerce titan Alibaba Group, in 2021 received a record fine of 18 billion yuan (S$3.48 billion) over antitrust violations.

The penalties are part of Beijing’s sweeping crackdown on the country’s tech behemoths that has sliced hundreds of billions of dollars off their values and shrunk revenues and profits.

But in recent months, the Chinese authorities have softened their tone on the tech crackdown amid efforts to bolster an economy that has been hurt by the Covid-19 pandemic.

A fine will likely focus on Ant’s alleged violations relating to a “disorderly expansion of capital” and the corresponding financial risks its once freewheeling businesses have caused, said one of the sources.

Business overhaul

The Chinese authorities abruptly pulled the plug on Ant’s IPO, which was set to be the world’s biggest, in November 2020 soon after Mr Ma publicly criticised China’s regulatory system for stifling innovation.

In the months since then, regulators set about reining in Mr Ma’s empire, starting with the antitrust probe into Alibaba. Mr Ma, one of China’s most successful and influential businessmen, has largely stayed out of public view since the crackdown.

The regulators also pushed Ant, whose businesses span payment processing, consumer lending and insurance products distribution, to revamp its business structure and bring it under tighter regulatory supervision.

Ant has been formally undergoing a sweeping business overhaul since April 2021, which includes turning itself into a financial holding firm, subject to rules and capital requirements similar to those for banks.

The overhaul includes folding Ant’s two lucrative micro-loan businesses into a consumer finance unit and sharing its treasure trove of data on more than one billion users with state firms, a move expected to curb its profitability and valuation by curtailing some of its businesses.

The penalty on Ant, however, is unlikely to be finalised till China appoints a number of top officials at the State Council and other government bodies in 2023, said four of the sources.

While China’s ruling Communist Party wrapped up its twice-a-decade Congress and central leadership reshuffle in October, top posts at the Cabinet and government bodies are still subject to changes, which typically take place at the annual meeting of Parliament in early March.

Central bank chief Yi Gang, 64, is likely to step down as he nears the official retirement age of 65 for minister-level officials.

The PBOC’s local branch in the eastern city of Hangzhou, home to Ant’s headquarters, received Ant’s application to set up a financial holding company in June, two of the six sources and a separate person said.

The central bank, however, is unlikely to formally disclose the application till Ant wraps up its revamp, added the sources. REUTERS

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.