Exclusive: China to fine Ant Group over $1 billion, signaling renewal nearing end sources

HONG KONG, Nov 22 (Reuters) – Chinese authorities are poised to fine Jack Ma’s Ant Group more than $1 billion, six sources with direct knowledge of the matter said, laying the groundwork to end the fintech company’s two year-long regulatory overhaul.

The People’s Bank of China (PBOC), which has driven the upgrade of Ant after the Chinese firm’s $37 billion IPO was scrapped at the last minute in 2020, is the regulator preparing the fine, five of the sources said.

The central bank has been in informal communication with Ant about the fine in recent months, three of the sources said. It plans to hold more discussions with other regulators about Ant’s renewal later this year and announce the fine as soon as the second quarter of next year, a source said.

A fine on Ant could help pave the way for the company to secure a long-awaited financial holding company license, seek growth again, and eventually revive plans for a public market debut.

Ant’s fine will be the largest regulatory penalty imposed on a Chinese internet company since ride-hailing major Didi Global was fined $1.2 billion by China’s cybersecurity regulator in July.

The fintech firm’s affiliate, e-commerce titan Alibaba Group ( 9988.HK ), last year received a record 18 billion yuan ($2.51 billion) fine for antitrust violations.

The penalties are part of Beijing’s sweeping crackdown on the country’s tech giants that have cut hundreds of billions of dollars off their values ​​and shrunk revenues and profits.

But Chinese authorities have played down the tech crackdown in recent months amid efforts to shore up an economy battered by the COVID-19 pandemic.

A fine is likely to focus on Ant’s alleged transgressions related to a “disorderly expansion of capital” and the corresponding financial risk the once freewheeling business has caused, one of the sources said.

Ant and the PBOC did not respond to Reuters requests for comment.

All the sources spoke on condition of anonymity as they were not authorized to speak to the media.

BUSINESS TAKEOVER

Chinese authorities abruptly pulled the plug on Ant’s IPO, which was set to be the world’s largest, in November 2020 shortly after billionaire entrepreneur Ma publicly criticized China’s regulatory system for stifling innovation.

In the months since then, regulators have begun to rein in Ma’s empire, starting with the antitrust probe into Alibaba. Ma, one of China’s most successful and influential businessmen, has largely stayed out of public view since the crackdown.

The regulators also pressured Ant, whose businesses span payment processing, consumer lending and the distribution of insurance products, to revamp its business structure and bring it under stricter regulatory oversight.

Ant has formally undergone a comprehensive business overhaul since April last year, which includes turning itself into a financial holding company, subject to rules and capital requirements similar to banks.

The overhaul includes folding Ant’s two lucrative microloan businesses into a consumer finance unit and sharing its treasure trove of data on more than 1 billion users with state-owned firms, a move expected to dampen profitability and valuation by curtailing some of the businesses. read more

However, the punishment against Ant is unlikely to be finalized until China appoints a number of top officials at the State Council and other government bodies next year, four of the sources said.

While China’s ruling Communist Party ended its twice-in-a-decade congressional and central leadership reshuffle last month, top cabinet posts and government bodies are still subject to changes, which usually take place at parliament’s annual meeting in early March.

The central bank’s chief, Yi Gang, 64, is likely to step down as he nears the official retirement age of 65 for minister-level officials.

China’s State Council Information Office, which handles media inquiries to the Cabinet, did not respond to a request for comment.

Just before Ant’s IPO, the central bank officially issued rules to regulate the country’s huge and often complex financial holding companies, as part of efforts to rein in systemic financial risks.

It has so far approved the establishment of three such firms, including China CITIC Financial Holdings.

The central bank’s local branch in the eastern city of Hangzhou, home to Ant’s headquarters, received the firm’s application to set up a financial holding company in June, two of the six sources and a separate person said.

However, the PBOC is unlikely to formally reveal the application until Ant has completed the upgrade, the sources added.

Reporting by Julie Zhu in Hong Kong; additional reporting from Xu Jing in Beijing; Editing by Sumeet Chatterjee and Muralikumar Anantharaman

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