Demanded “Establish a separate financial holding company”
It is interpreted as a guideline for separation or abandonment of management rights due to strict standards
Ant group global investors are also a nightmare
Marwin. Photo = Reuters
Chinese authorities virtually ordered the dismantling of Ant Group, a fintech subsidiary of Alibaba Group. It is analyzed that Ma Yun, the founder of Alibaba and the largest shareholder of Ant Group, who criticized the financial policy of the authorities while tightening regulations on’Big Tech (large information technology company)’ took as a’demonstration case’. Global investors who have invested trillions of won in Ant Group also faced headwinds.
Ant Group’s dark cloud for growth
According to Xinhua News Agency on the 28th, the People’s Bank, the Bank Insurance Supervision and Management Committee, the Securities Supervision and Management Committee, and the Foreign Exchange Administration Bureau disclosed requirements for Ant Group the day before. The financial authorities summoned Ant Group executives on the 26th to convey the request. The form is’request’, but the substance is interpreted as’command’.
The financial authorities intensively ordered Ant Group to’go back to the full-time payment business’ and’to establish a financial holding company’. Ant Group is a company launched as Alipay, a payment agency service of Alibaba, China’s largest e-commerce company, which is its parent company. Alipay has expanded its reach to mobile payments and currently has 1 billion users in China. It is dividing the Chinese payment market with Tencent’s WeChat Pay.
Ant Group entered the financial industry based on the payment business and has grown into China’s largest business in micro-loans and online insurance. 63% of Ant Group’s sales of 72.5 billion yuan (about 12.18 trillion won) in the first half of this year came from the financial industry. The proportion of microloans is the highest at 39%.
The payment service sales of the main business are only 35.8%, and since this business spends most of the cost for maintaining consumers and affiliates, there is little profit. As consumers use the Alipay application, they are making profits from micro-loans, li-chai (a Chinese-specific financial product), and insurance. Since there are so many Alipay users, many Chinese banks, securities companies, and insurance companies have alliances with Ant Group.
The order of the Chinese financial authorities is to separate the financial industry and establish a separate holding company. Since November, China has established a financial holding company in a non-banking financial company with a financial asset of 100 billion yuan, and has introduced a rule requiring that if the holding company’s license is not obtained, the company sells shares or gives up management rights. One of the reasons that the listing of Ant Group was suspended in early last month is because it did not obtain a license as a financial holding company.
In order to obtain a license, a financial holding company must invest 50% or more of the capital of its affiliated financial subsidiary as capital. China also added a regulation that restricts the issuance of bonds to less than four times the capital stock when micro-loan companies raise loans. Ant Group issued bonds equivalent to 4.7 times the capital as of the end of June.
In order for Ant Group to meet the conditions of a financial holding company, it is in a situation where it has to increase its capital significantly. However, there are many analyzes that it will be difficult to find new investors for Ant Group, whose’ugly fur’ is firmly stuck in the authorities and is blocked from listing. This is why the authorities’ request to establish a financial holding company is actually interpreted as an order to withdraw from the financial industry.
In response to the request of the authorities, Ant Group said, “We will form a corrective work team to fully fulfill the requirements,” and “We will prepare a corrective plan and timetable immediately, and will continue to receive supervisory and management instructions in the implementation process.”
China tightens regulations on conglomerates
Bloomberg News reported on the 27th (local time) that global investors who have put trillions of won in Ant Group in anticipation of a’big hit’ are also suffering from nightmares. In June 2018, Ant Group attracted an investment of $14 billion (approximately 15 trillion won) from 10 institutional investors including Singapore and Malaysia’s sovereign wealth fund, Carlyle and Warburg. The enterprise value increased from 150 billion dollars at the time of induction to 315 billion dollars at the time of listing in November. We could expect more than double the profit.
However, concerns over massive losses are growing as the possibility of the Ant Group dissolution has been raised. Chun Soo-jin, CEO of Jeffreys Financial Group, China Research, said, “Ant Group’s payment business has already grown as it grows in China. Even if you do not remove the financial industry, if you focus on payment only, your growth will inevitably weaken.”
As the Chinese authorities are planning to continue strengthening regulations on big tech, the future of platform companies that have secured monopoly status, such as Ant Group as well as parent company Alibaba, Tencent, which operates WeChat (Chinese version of KakaoTalk), and food delivery company Mei Tuan Ping It’s getting dark. Last month, the Chinese government launched the’Anti-Unfair Competition Ministries’ Conference on Market Supervision at the government level. On the 24th, it launched an investigation into the alleged violation of Alibaba’s antitrust law.
At the Central Economic Operations Conference, which closed on the 16th, the Chinese leadership suggested strengthening antitrust regulations for large corporations as one of the key tasks next year. It is analyzed as an attempt to take care of the deteriorating public sentiment as the concentration of wealth such as the gap between large and small companies increases.
Beijing = correspondent Kang Hyun-woo [email protected]