Jack Ma’s Ant faces restructuring obstacle as state investor withdraws

Jack Ma’s Ant Group has suffered a setback to its government-led restructuring efforts after a state-owned asset manager unexpectedly pulled out of a deal to invest in the fintech’s lending arm.

China Cinda Asset Management, controlled by the country’s finance ministry, was set to invest Rmb6bn ($946m) in exchange for 20 per cent of Ant’s loans business, but said late on Thursday that it was withdrawing from the deal after “prudent commercial consideration and negotiation with the Target Company”.

Ant, which is controlled by the billionaire tech entrepreneur Ma, has been restructuring its business since Chinese regulators pulled the plug on its blockbuster $37bn initial public offering just days before it was set to debut in November 2020.

Ma has largely disappeared from public view as Ant and his ecommerce group Alibaba have come under severe government pressure. Financial authorities have focused on shrinking Ant’s business and limiting financial risk as part of a “rectification” campaign for the fintech company, which was China’s largest issuer of consumer credit.

The rectification plan includes winding down Ant’s biggest self-run fund and forcing it to spin off two of its most prized businesses into new companies, which have in turn accepted state-owned shareholders.

Ant’s lending business, which accounted for 39 per cent of its revenue in the first half of 2020, is being transferred to Chongqing Ant Consumer Finance, in which it holds a 50 per cent stake. Its vast horde of user data will support a new credit scoring company being set up with state-owned shareholders, in which Ant holds a 35 per cent stake.

Cinda’s planned investment was part of a capital raising for Chongqing Ant to bolster its coffers and continue lending to millions of users on Ant’s Alipay app.

Analysts at Fitch Ratings had projected the enlarged capital base would enable Ant to support a large portion of its online lending activities within new government rules to rein in financial risk.

Chongqing Ant said it “fully respects the business decision” made by Cinda and will work to bring in new investors to “ensure the rectification work on the consumer finance business is effectively carried out”.

Other minority shareholders in the venture include Cinda’s subsidiary Nanyang Commercial Bank, battery maker Contemporary Amperex Technology, state-owned distressed-debt investor China Huarong Asset Management and Jiangsu Yuyue Medical Equipment & Supply.

Jiangsu Yuyue said it was also putting off its plan to invest more in Chongqing Ant.

Dong Ximiao, chief analyst at the Zhongguancun Internet Finance Institute, said it would not be easy for Ant to find an investor to replace Cinda.

“Not many firms have Rmb6bn in cash on hand . . . and just having cash is not enough, the qualifications for investors to hold shares in these financial institutions are very high.”

Chinese regulators have continued to scrutinise Ant and its superapp, Alipay. Ant this week also scrapped an experimental investment tool it had recently begun offering to users.

Chinese business news website Caixin said the feature was forced offline because of regulatory violations. Ant said third-party fund advisers had offered the tool “as part of a trial period that has [been] completed”.

Ant has also continued to shrink its flagship money market fund Tianhong Yu’e Bao to comply with the government’s rectification plan. The fund quickly became the world’s biggest money market fund after its launch in 2013 by drawing in leftover cash that users stored in Alipay’s payments app.

But at the end of the third quarter, Yu’e Bao’s assets under management had fallen to Rmb765bn, or about half of its peak in 2018.

Additional reporting by Nian Liu in Beijing

Video: Why the Ant IPO got cancelled

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