Ant Group to be financial holding firm in forced revamp

BEIJING • Billionaire Jack Ma's Ant Group will drastically revamp its business, bowing to demands from the Chinese authorities that want to rein in the country's fast-growing Internet giants.

Ant will now effectively be supervised more like a bank, a move with far-reaching implications for its growth and ability to press ahead with a landmark initial public offering (IPO) that the government abruptly delayed late last year.

The overhaul announced by regulators and the company on Monday will see Ant transform itself into a financial holding company, with the authorities directing it to eliminate unfair competition in payments, increase oversight of how that business fuels its crucial consumer lending operations and ramp up data protections.

The firm will also need to cut the outstanding value of its money-market fund Yu'ebao.

The directives come as China's regulators pledge to curb the "reckless" push of technology firms into finance and crack down on monopolies online.

The twin pillars of Mr Ma's empire - Ant and e-commerce giant Alibaba Group Holding - have been at the centre of the increased scrutiny, sending a clear message to the country's largest corporations and their leaders to fall in line with Beijing's priorities.

Government agencies and regulators overseeing the banking and securities sectors met Ant to dictate the changes. Regulators slapped a record US$2.8 billion (S$3.75 billion) fine on Alibaba this month after an antitrust probe found that the e-commerce company abused its market dominance.

"The darkest hour for Alibaba has passed, but I wouldn't say so for Ant Group," said Mr Dong Ximiao, chief researcher at Zhongguancun Internet Finance Institute. "The latest announcement clarified the framework for Ant's restructuring, but the tone is still harsh and some of the requirements are tougher than expected."

While the revamp leaves Ant's main businesses intact, regulators are making it harder for the firm to exploit synergies that allowed it to direct traffic from its payments service Alipay to other services, including wealth management, consumer lending, and even neighbourhood services and delivery.

The authorities require Ant to cut off any improper linking of payments with other financial products, including its Jiebei and Huabei lending services.

Ant said it would fold those units into its consumer finance arm, apply for a licence for personal credit reporting and improve consumer data protection.

"Ant's growth prospects just became a lot more challenging, given it will be much more difficult to capitalise on its scale. These growth challenges... make their IPO value and attractiveness a shadow of what it was," said Mr Mark Tanner, founder of Shanghai-based consultant China Skinny.

Ant chairman Eric Jing promised staff last month that the firm would eventually go public.

Bloomberg Intelligence analyst Francis Chan estimated that the firm's valuation may drop about 60 per cent from the US$280 billion it was pegged at last year, given the rule changes being contemplated in areas such as payments.

Changes to its payments business were among the top priorities outlined by regulators on Monday, with Ant pledging to return the business "to its origin" by focusing on micro-payments and convenience for users.

Earlier this year, China proposed measures to curb market concentration in online payments, which Ant and rival Tencent Holdings have transformed with their ubiquitous mobile apps that are used by a combined one billion people.

The central bank said in draft rules that any non-bank payment company with half of the market in online transactions or two entities with a combined two-thirds share could be subject to antitrust probes.

Mobile payments are only part of what contribute to online transactions, but they have become the most important platform in China, fuelling growth in other financial services. Investors are also awaiting final rules aimed at curbing online consumer lending that were unveiled late last year.

Given all the changes still down the track, an Ant IPO remains "far, far away", said Zhongguancun Internet Finance Institute's Mr Dong.

Hong Kong-based head of financial research at Jefferies Financial Group, Mr Chen Shujin, said: "What we have now is a clear road map for Ant to restructure its sprawling businesses, and what's certain is that if it revives the IPO in the future, it will be a listing of the entire financial holding company."

BLOOMBERG