Ant Plans Credit Unit Overhaul to Avoid Sharp Drop in Loans

Jack Ma’s Ant Group Co. is planning to restructure its consumer credit operations so the company can continue lending nationwide under new regulations that would otherwise threaten to dramatically restrict its most lucrative business, people familiar with the matter said.

The plan, which is preliminary and subject to regulatory feedback, is part of Ant’s sweeping reassessment of its corporate structure after Beijing scuttled the Chinese fintech giant’s $35 billion initial public offering in November.

Ant wants to gradually move its main consumer credit operations -- which had 1.7 trillion yuan ($263 billion) of outstanding loans as of June -- into a new consumer finance unit that has the right to operate nationwide, the people said, asking not to be identified because the matter is private.

Most of Ant’s consumer loans currently sit within the company’s two micro-lending units, known as Huabei, or “just spend” and Jiebei, “just lend.” Under draft regulations announced in November, Huabei and Jiebei would be forced to limit their operations to China’s southwestern municipality of Chongqing unless they get new national licenses -- a potentially lengthy process. Shifting to the consumer-finance unit would in theory allow Ant to keep lending nationwide without having to wait for new licenses.

Given the fluid state of regulation in China, Ant still has little clarity on the degree to which its torrid pace of loan growth in recent years will be restrained by authorities. The company, which is part-owned by Alibaba Group Holding Ltd., will almost certainly face higher capital requirements no matter what shape its consumer credit business ultimately takes.

Representatives for Ant declined to comment. The China Banking and Insurance Regulatory Commission didn’t immediately respond to a request for comment.

The crackdown on Ant has left investors scouring for clues on how the company will reorganize its business to assuage Beijing. While regulators have stopped short of directly asking for a breakup of the company, the central bank has stressed that Ant needs to “understand the necessity of overhauling” and come up with a timetable as soon as possible.

Highlights of China’s Draft Rules for Online LendersImpact
Online lending companies like Ant would be required to provide 30% of funding for loansMore capital needed; Ant holds about 2% of loans on its books
Firms to be banned from operating outside provincial bases without special approval from the banking watchdog. Permission, if granted, to be renewed every three yearsRequire some firms to reapply for licenses; more frequent scrutiny
Those lending in multiple provinces to have a 5 billion yuan of minimum registered capitalMore capital, greater scrutiny on operations
A shareholder cannot control more than one micro-lender operating nationallyLimits expansion vehicles

Bloomberg reported last month that Ant is planning to fold its financial operations –- including its consumer credit offerings -- into a holding company that could be regulated more like a bank. The holding company would also contain insurance, payments and MYbank, an online lender in which Ant is the largest shareholder.

Chinese regulators are also studying plans to force Ant to divest its minority investments in some financial companies, a person familiar has said.

China’s banking watchdog said Ant and its partners could begin setting up the new consumer finance entity in September. Its establishment is still subject to further regulatory approval, Ant said in its prospectus in October.

Other backers of the consumer finance unit include Nanyang Commercial Bank Ltd., China TransInfo Technology Corp. and Contemporary Amperex Technology Co.

Ma, who co-founded both Ant and Alibaba, has seen his net worth tumble by almost $11 billion since the end of October as China stepped up scrutiny of his empire along with the country’s other tech behemoths. The 56-year-old former English teacher -- often associated with the meteoric rise of China’s internet sector -- hasn’t been seen in public since November.

©2021 Bloomberg L.P.

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