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Ant plans holding company with regulation similar to bank, sources say

BEIJING (BLOOMBERG) – Jack Ma’s under-seige Ant Group is planning to fold its financial operations into a holding company that could be regulated more like a bank, according to people familiar with the situation, potentially crippling the growth of its most-profitable units.

The fintech giant is planning to move any unit that would require a financial licence into the holding company, pending regulatory approval, said the people, who asked not be named because the matter is private. The plans are still under discussion and subject to change, the people said. Ant declined to comment.

The operations that Ant is looking to fold into the holding company include wealth management services, consumer lending, insurance, payments and MYbank, an online lender in which Ant is the largest shareholder, the people said. Under the financial holding company structure, Ant’s businesses would likely be subject to more capital restrictions, potentially curbing its ability to lend more and expand at the pace of the last few years.

Chinese regulators on Sunday (Dec 27) ordered Ant to devise a plan to overhaul its business, the latest in a series of steps to rein in Mr Ma’s online finance empire. While it stopped short of directly asking for a breakup of the company, the central bank stressed Ant needed to “understand the necessity of overhauling its business” and come up with a timetable as soon as possible.

“Its growth would slow a lot,” said Francis Chan, a Bloomberg Intelligence analyst in Hong Kong. The valuation of the non-payment businesses, including wealth management and consumer lending, could be slashed by as much as 75 per cent, he said.

Ant was last month poised for a public listing that would have valued it at more than US$300 billion (S$398.7 billion), before regulators intervened and scuttled the IPO.

Ant held US$11 billion in cash and equivalents as of June, according to its IPO filing. The company said in its prospectus in October that it would use its subsidiary Zhejiang Finance Credit Network Technology to apply for the financial holding licence.

Under rules that took effect in November, non-financial companies which control at least two cross-sector financial institutions are required to hold a financial holding license.

Mr Chan estimates that Ant needs to inject at least 70 billion yuan (S$14.2 billion) of new capital just for its credit-lending business. That calculation is based on draft rules that require Ant to co-fund 30 per cent of loans, with a maximum asset leverage of five times.

Lifestyle Units Ant is planning to leave its digital lifestyle business – the services that link users with food deliveries, on-demand neighborhood services and hotel bookings – out of the financial holding company, one of the people said. Ant will still be the parent of all those operations, the person added.

Ant isn’t working on a proposal to break up the company at this time, though is seeking more guidance from regulators on what structure will be acceptable and may change its plans based on that feedback, that person said.

Ant’s valuation could fall to below US$153 billion, according to Mr Chan, similar to where it stood two years ago after a fundraising round.

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