Ant Group can no longer pretend it’s just a tech company
Ant Group has grown into a giant creature, but it is still not at the top of the food chain in China, a fact the company and legions of eager new investors were forced to confront again on Tuesday.
China’s financial technology firm, a subsidiary of e-commerce giant Alibaba, has been forced by regulators to suspend competing IPOs in Shanghai and Hong Kong just two days before the record $ 34 billion in registrations. The company cited “recent changes in the fintech regulatory environment” as one of the reasons for the sudden hiatus.
Ant was reportedly valued at over $ 300 billion, but that massive valuation was based on, in retrospect, optimistic assumptions about Ant’s ability to continue to counter the trend of tighter financial regulation in China, which is evident since at least 2017. Investors have also ignored warning signs in recent weeks regarding regulators’ malaise.
Ant presented itself as a tech company rather than a financial institution, in part to avoid control of regulators. In recent years, the company has shifted from being a direct provider of financial services to being an online platform for those services, precisely because being an online lender has become a dangerous business from a financial perspective. regulatory risks.
But the latest debacle shows that such attempts at dodging and weaving can be in vain as Ant herself has become such a big player in China’s financial system: she has the equivalent of $ 321 billion in credit balances in debt. suffering for consumers and small businesses, for example. . The speech by Jack Ma, the majority shareholder of Ant, last week criticizing regulators for stifling innovation alludes to tensions. Mr. Ma and other Ant leaders were called by regulators Monday.
And new rules are coming. Under the draft rules released on Monday, online microcredit companies like Ant could be required to fund at least 30% of every loan they take with a bank or other financial institution. This means Ant will need to invest more of its own capital – it now only keeps 2% of the loans issued on its platform, while the rest is either underwritten by banks or securitized. The actual amount always depends on the implementation of the final rules.
New regulations like these could make Ant a bank. But Ant is valued more as a tech company, in part because it could evolve quickly without taking too many risks on its own balance sheet. Ant’s potential growth may now slow down.
When Ant returns to the market – and there is no indication of when that will happen – investors are unlikely to be so bullish about regulatory risks. And that means a future ant is likely to be valued more as the hybrid tech and financial company they really are, rather than just a tech darling.
Write to Jacky Wong at [email protected]
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Appeared in the November 5, 2020 print edition under the title “Ant Can No Longer Pretend It Is a Tech Company”.