The Chinese central bank has imposed a new restructuring plan on Jack Ma’s Ant Group, but what does the revamp mean for investors?
Back in November, Ant Group’s IPO was suspended and changes in the fintech regulatory environment in China were blamed. Now, the People’s Bank of China has stated that Ant must restructure its business into a financial holdings company. Ant’s sister company, Alibaba (NYSE: BABA), saw shares dip on Tuesday during market hours.
Ant was valued at roughly $315 billion at its IPO pricing, but now the company’s founder Jack Ma is looking for ways to divest his stake in the firm. Regulators have suggested that this move would help reduce scrutiny of the company from Beijing.
Ant’s restructuring plan is part of a wider plan by the Chinese government to curb the market power of the country’s tech companies.
What do investors need to know about Ant’s new reconstruction plan?
The overhaul subjects Ant to tighter regulatory oversight and minimum capital requirements, including:
- Ant Group needs more capital. The government has stated that any fintech platform must own 30% of all the loans that they grant to banks. To meet this condition, the company needs an additional 13.4-20.1 billion yuan ($2 to $3 billion). This task will be difficult for Ant Group as the company only owns 50% of its consumer finance company. Ant might then also need to convince other shareholders to come up with more capital to maintain investors’ percentages.
- More separation between Ant’s payment app, Alipay, and its other credit products is needed. Yu’e Bao, the company’s money market fund which at one point was the world’s largest, the size must also be reduced. Huabei and Jiebei are the company’s other credit products that are embedded within Alipay and rely on the app for traffic. If data access to Alipay would be limited, this might affect Ant’s loan quality.
- The Chinese-based company will also be required to set up a personal credit reporting company and will need to apply for a credit reporting license. This is to ensure the user’s personal information is protected and will help prevent data breaches. Some experts believe that the People’s Bank of China may not give the company this license for Ant’s own credit company and may need to partner with a state-owned company to fulfill this obligation.
Read more about Ant Group and Alibaba below:
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