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Jack Ma’s Ant Group has reached a deal with Chinese regulators to restructure its business after raising concerns that halted its initial $ 37 billion public offering last year, according to several people familiar with the situation.
The proposed restructuring will involve Ant placing all of its major businesses, including its technology units, in a financial holding company in order to comply with a new regime implemented by the People’s Bank of China in November.
The change, which is expected to be announced before the start of the Chinese New Year holiday on Feb. 11, according to two of those familiar with the process, will leave China’s largest mobile payment company under tighter capital requirements, which will make it more of a bank. than a technology company.
Chinese regulators, with the agreement of President Xi Jinping, suspended the IPO of Ant’s blockbuster in Hong Kong and Shanghai in November, about a week after Mr. Ma, Ant’s majority shareholder, gave a pop-up speech criticizing state-owned banks and Chinese regulators.
A person close to the company, who declined to be named, said it would take several months to complete the overhaul. “Business will definitely be affected,” he added. “The actual impact will depend on how strictly we follow the new online lending rule.”
Another person familiar with the situation said he didn’t expect regulators to approve so quickly after Ant presented his restructuring plan. But “it’s China,” he added.
Ant declined to comment on the potential restructuring. The news was first reported by Bloomberg.
The company’s Alipay app has more than 700 million monthly users who use it to pay, take out loans, insure and manage their money. Alibaba’s results on Tuesday showed Ant remained hugely profitable in the third quarter of last year, making an estimated profit of RMB 14.5 billion, before its listing was suspended.
Ant reported first half 2020 net profit of RMB 21.9 billion.
Beijing had signaled its intention to force companies such as Ant to form financial holding companies in September with the announcement of new regulations, a year after the publication of draft rules for such companies.
Ant is likely to need to raise capital to meet PBoC rules for financial holding companies, which, along with capital adequacy, risk control and governance requirements, make the vehicles portfolio closer to banks than technology companies.
Adding to regulatory uncertainty, authorities have yet to release a finalized version of the draft online lending regulation that would require internet lending platforms like Ant to fund at least 30% of every loan they make. from their own balance sheet.
Lawyers had warned that the new rules would force an overhaul of Ant’s business model and that a draft online lending settlement had to be concluded before Ant could make a second attempt at its Shanghai IPO and in Hong Kong.
Analysts have estimated that the new rules could significantly reduce the company’s revenue and reduce Ant’s valuation by 10 to 50 percent, with stricter regulations weighing more heavily on funds raised by a revived IPO.
Hong Kong-listed Alibaba shares went from a 4% loss to a slight gain on Wednesday upon news of the deal with Ant.
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