China fines Ant Group more than $1 billion, signaling the end of its restructuring — Reuters

China fines Ant Group more than $1 billion, signaling the end of its restructuring — Reuters

Chinese authorities are preparing to impose a fine of more than $1 billion on Jack Ma’s Ant Group, setting the stage for an end to the company’s two-year restructuring. The fine will be imposed by the People’s Bank of China (PBOC), which is managing Ant’s upgrade after the Chinese firm’s $37 billion IPO (initial public offering) was aborted at the last minute in 2020.

According to Reuters sources, the central bank has been in informal talks with Ant over the fine over the past few months, and plans to hold further discussions with other regulators on Ant’s restructuring later this year and announce the fine in the second quarter of next year.

The fine could help the company get its long-awaited financial holding company license, grow again and finally resume its plans for a public market debut. The fine for Ant would be the largest regulatory penalty imposed on a Chinese Internet company since China’s cybersecurity regulator fined Didi Global $1.2 billion in July.

Ant’s parent company, e-commerce titan Alibaba Group, was fined a record 18 billion yuan ($2.51 billion) last year for antitrust violations.

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Billion fines of China's leading technology companies.  Graphics: REUTERS
Billion fines of China’s leading technology companies. Graphics: REUTERS

The fines are part of Beijing’s sweeping crackdown on the country’s tech giants, but Chinese authorities have softened their tone on the tech crackdown in recent months amid efforts to support an economy battered by the COVID-19 pandemic.

The fine is likely to focus on Ant’s alleged wrongdoing related to the “promiscuous expansion of capital” and related financial risks that its business may have caused.

Restructuring Ant

In November 2020, Chinese authorities abruptly halted Ant’s IPO, which would have been the world’s largest, shortly after its founder, billionaire Jack Ma, publicly criticized China’s regulatory system for stifling innovation and likened banks to “pawn shops.” A few months later, regulators decided to crack down on Ma’s empire by opening an antitrust investigation against Alibaba.

Ma, one of China’s most successful and influential businessmen, has largely remained out of the public eye since the crackdown. At the beginning of January 2021, Western media raised the alarm about his alleged disappearance.

The founder of Alibaba, Jack Ma, has found himself. For the first time after a three-month absence from the public, he surrendered… via video link

Regulators also pushed Ant (whose businesses include payment processing, consumer lending and distribution of insurance products) to restructure its business and place it under tighter regulatory oversight.

Ant Group's stand at the Singapore FinTech Festival, Singapore, November 4, 2022. Photo: REUTERS
Ant Group’s stand at the Singapore FinTech Festival, Singapore, November 4, 2022. Photo: REUTERS

Since last April, Ant has been officially undergoing a major restructuring of the business, which includes transforming the company into a financial holding firm subject to rules and capital requirements similar to those applied to banks. The restructuring involves merging Ant’s two profitable microcredit businesses into a consumer finance division and transferring data on more than 1 billion users to state-owned firms. The move is expected to reduce Ant’s profitability and valuation.

Punishment of Ant, however, is unlikely to be completed until China appoints a number of senior officials to the State Council and other government bodies next year, four of the sources said.

While China’s ruling Communist Party last month wrapped up its twice-a-decade congress and reshuffled the central leadership, top cabinet and government positions are still subject to reshuffles that usually take place at the annual parliament meeting in early March. . Central bank chief Yi Gang is likely to step down as he nears the official retirement age of 65 for ministerial-level officials.

Shortly before Ant’s IPO, the central bank officially issued rules to regulate the country’s huge financial holding companies as part of its efforts to curb systemic financial risks. He approved the establishment of three such firms, including China CITIC Financial Holdings.

The local branch of the central bank in the city of Hangzhou, where Ant is headquartered, received the firm’s application to set up a financial holding company in June, two of the six sources told Reuters. However, the PBOC is unlikely to formally disclose it until Ant completes its upgrade, the sources added.

Source: Reuters

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