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https://scmp.com/tech/article/3199707/ant-group-expands-capital-base-consumer-finance-unit-meet-regulatory-demands-although-scale-down
Tech

Ant Group expands capital base of consumer finance unit to meet regulatory demands, although scale is down from earlier plan

  • The capital expansion is down substantially from an original 22 billion yuan planned at the end of 2021
  • If Ant had not been able to expand the capital base of the unit, it would have needed to scale back existing businesses to comply with regulations
An Ant Group booth at the World Artificial Intelligence Conference (WAIC) in Shanghai. Photo: Bloomberg

Ant Group, which is undergoing a restructuring to comply with new regulations after its planned mega IPO in Hong Kong and Shanghai was called off two years ago, has completed a key piece of the puzzle with an expansion of the capital base at its consumer credit unit.

Chongqing Ant Consumer Finance Co, a new subsidiary set up in June 2021 to bring the group’s sprawling and lucrative consumer finance business within regulatory limits, will increase its capital to 18.5 billion yuan (US$2.63 billion) from a current 8 billion yuan. This was seen as a necessary step for Ant to be able to maintain its consumer credit business under the two brands of Huabei and Jiebei.

The capital expansion is down substantially from an original 22 billion yuan planned at the end of 2021, which failed to materialise after China Cinda Asset Management, a state-owned firm created in 1999 to manage bad assets from China Construction Bank, walked away from the plan.

The suspension of Ant’s IPO, which was expected to give the fintech giant a record valuation of US$300 billion, in late 2020 was a watershed moment in the relationship between Beijing and domestic Big Tech firms. China’s central bank and financial regulator imposed fresh regulations to clip the wings of Ant Group, an affiliate of Alibaba Group Holding, demanding that the fintech giant follow the same rules as a conventional bank, such as having an adequate capital base and leverage ratio.

Alibaba owns the South China Morning Post.

If Ant had not been able to expand the capital base of the unit, it would have needed to scale back existing businesses to comply with the new regulatory requirements.

Ant will contribute half, or 5.25 billion yuan, of the funds to remain the largest shareholder with a 50 per cent stake. Jiangsu Yuyue Medical Equipment and Supply Co, an existing shareholder, will pay 524 million yuan to maintain its 4.99 per cent equity stake, the company said in a stock exchange filing on Monday evening.

Hangzhou Jintou Digital Technology Group, a company controlled by the government of Hangzhou where Ant is based, will invest 1.85 billion yuan to become the second-largest shareholder with a 10 per cent stake, according to the filing. Chongqing Rural Credit Investment Group, backed by the local Chongqing government where the Ant unit is registered, will also join as a new investor.

Other investors include Guangzhou Boguan Telecommunication Technology, a NetEase Inc subsidiary, as well as Sunny Optical Technology and Transfar Zhilian Co. As a result of the capital expansion, the stakes of existing shareholders, namely Cathay United Bank China, Contemporary Amperex Technology, China TransInfo Technology and bad loans manager China Huarong, will be diluted.

The plan is still pending regulatory approval, according to the filing. Ant did not immediately respond to a request for comment.

According to a research note by Citic Securities, the capital base enlargement marks a “milestone” for Ant’s rectification measures, which “helps relieve pressures on its microfinance business”.

Chinese regulations require that consumer loan companies have a minimum capital adequacy ratio of 10 per cent. According to Citic Securities, after the capital expansion, Chongqing Ant will be able to increase its loan balance to 240 billion yuan from 100 billion yuan if Ant is the sole lender, or lift it to 800 billion yuan from 350 billion yuan if it is a syndicated loan.

In addition to the consumer credit business, Ant is also waiting for licences for its credit rating unit and a financial holding entity licence. Ant, whose close links with Alibaba have also been diluted this year, has not announced any plan for a revived IPO.