What Is This? An Application for Ants?
Today, The People’s Bank of China (PBOC), China’s central bank, accepted Ant Group’s application to set up a financial holding company. This represents a significant milestone toward a “revamp” of Jack Ma’s fintech business. To provide some background, Ant Group’s Initial Public Offering (IPO) was delayed back in November 2020 after the Shanghai Stock Exchange suspended the company’s listing.
The company’s IPO was poised to raise $37 billion, resulting in a 10% boost in Alibaba Group Holding Ltd.’s (BABA.NYSE) shares. Keep in mind that Ant Group is an affiliate of Alibaba. In fact, Alibaba, a Chinese multinational technology company, owns approximately one-third of Ant Group, a “world-leading internet open platform.”
Ant Group’s offering includes blockchain, Internet of Things (IoT), database, Artificial Intelligence (AI), and security technology solutions. To be more specific, the company offers Alipay, Yu’e Bao, Huabei, MYbank, and Zhima Credit. It should be noted that Alipay serves over 1.2 billion users and 80 million merchants. In total, Alipay made up 53.8% of China’s mobile payment market back in 2018.
Suffering from Success
As previously mentioned, the company’s planned IPO was set to raise $37 billion, which would have made it the world’s biggest listing. However, Ant Group’s sheer size and presence in China was cause for concern for some institutions in China, causing regulatory authorities to take action. For example, in just four years, Yu’e Bao was able to garner 370 million account holders and $211 billion in assets.
As if in response to Yu’e Bao’s growth, the China Securities Regulatory Commission (CSRC) imposed new restrictions on money-market funds. According to the regulations, fund managers must set aside at least 40% of management fees every month as risk reserves. Additionally, fund sales agents should hold at least 20% of their sales revenue every month as reserves.
To summarize the impact of these regulations, Yu’e Bao has since decreased its fund size by more than 55% from a peak of $1.7 trillion yuan in 2018. While it was not explicitly stated that the CSRC’s actions were in response to Yu’e Bao, the company is only one of two major funds, defined by more than 200 billion yuan, or $31.5 billion in net assets.
Ultimately, Ant Group was forced to restructure into a financial holding company. In doing so, the company is now subject to capital requirements and regulations, similar to banks. Referring back to its latest news, Ant Group’s latest application approval indicates that the company may soon receive its license, marking the revival of Jack Ma’s successful fintech business.
Red Light, Green Light
With this in mind, Ant Group expects to file a preliminary prospectus for its share offering as early as next month. For the time being, the company is awaiting final feedback from financial regulators, such as the PBOC, regarding its financial holding firm. Some of Ant Group’s remaining obstacles include securing a financial holding license and, of course, officially completing its restructuring.
Ant Group also announced that its personal credit-scoring Joint Venture (JV) has applied for a permit. According to an unnamed source with direct knowledge of the matter, the central bank has mostly finished assessing Ant Group’s credit scoring license. Looking forward, Ant Group plans to establish JV partners with three state-owned companies.
These JVs will be established under a plan that allows state-backed investors to take a combined 48% stake in Ant Group’s key asset. In total, Ant Group will own 35% of the venture, whereas Transfar Group, the only non-state-backed shareholder, will hold a 7% stake. The remaining 10% will go to Hangzhou Xishu, according to the PBOC.
Alibaba’s share price opened at $112.54 today, up from a previous close of $101.45. The Company’s shares were up 0.81% and were trading at $102.29 as of 12:18 PM EST.