Nine months into a government-mandated restructuring to become a financial holding company, Ant Group has run into some roadblocks.
Less than a month ago on Christmas Eve, the Alibaba Group Holding affiliate announced a Rmb22bn ($3.47bn) equity deal that would boost the registered capital of its consumer loan arm to Rmb30bn.
This was a key plank of Ant’s overhaul of its business operations.
The consumer loan unit, called Chongqing Ant Consumer Finance Co, will fold in Ant’s lucrative microloan businesses, Huabei and Jiebei. To make the revamped consumer loan business compliant with regulations for the industry, the planned Rmb22bn capital injection was going to be just the beginning.
But the transaction has now been temporarily suspended after a key investor backed out.
China Cinda Asset Management, which would have become Ant’s second largest shareholder with its planned Rmb6bn equity commitment, dropped out last week after “further prudent commercial consideration and negotiation”. Its exit led to two other investors that were together looking to pump in nearly Rmb3bn into the company to announce that the deal is on hold.
That U-turn capped a rather tumultuous period for Ant since Beijing abruptly called time on its blockbuster dual listing in Hong Kong and Shanghai in November 2020.
The heat has now turned up on Ant.
The firm had previously said it wanted to eventually get back on track with its derailed IPO (regulatory approval for the transaction has already lapsed). When the deal was pulled, some bankers had been hopeful that a reboot could even come after six months — a timeline that ended up being overly optimistic.
Ant’s potential investors are still waiting for some good news from the restructuring.
But casting a further shadow on the company’s future and its ability to finally go public is the fact that China’s big tech crackdown shows no sign of stopping.
Less than three weeks into 2022, regulators have already tightened their grip on overseas listings of large internet platforms, and handed out antitrust penalties to industry leaders, including Ant’s parent Alibaba.
Investors have other concerns, too. The revamp of Ant’s consumer loan business is only one element of its business overhaul. What is also at the core of the restructuring is for the company to transform into a financial holding company so that all its financial-related businesses could be fully regulated.
That presents its own challenges. Investors keen on the derailed November 2020 IPO attempt would likely view the new financial company model as less exciting than Ant’s previous positioning as a tech firm — something Ant had repeatedly stressed throughout the IPO process.
Ant’s bankers had given the company a valuation of up to $300bn, a figure that could be dramatically different when — and if — it comes back to the market as a bank-like firm.
Many things are at stake for Ant and its investors: the restructuring process; the outlook for tech giants like Alibaba; Beijing’s determination of cleaning up and de-risking the financial sector; and profitability and growth prospects for Ant as a financial company.
It may not be all bleak, of course. Ant's business could emerge from the saga stronger, in line with regulations, and with less uncertainty around its future.
But a lot is still largely unknown. And until more clarity and details are offered, Ant will continue remaining under pressure — and risk losing even more investor support.