The government-ordered makeover of the financial technology company is progressing after Chinese regulators accepted a plan by billionaire Jack Ma’s Ant Group Co. to fund 10.5 billion yuan ($1.5 billion) for its consumer unit.
A bid by billionaire Jack Ma‘s Ant Group to raise 10.5 billion yuan for its consumer division was authorized by Chinese regulators, signifying headway in the government-ordered reorganization of the financial tech firm.
According to a notice published on December 30, the Chongqing branch of the China Banking and Insurance Regulatory Commission approved the company’s intention to increase its capital to 18.5 billion yuan.
An entity held by the city of Hangzhou would hold 10% of the company’s shares after the deal, making it the second-largest shareholder behind Ant, which committed 5.25 billion yuan as part of the plan.
The deal removes a significant barrier for Ant as it works to satisfy regulatory requirements in the wake of a crackdown on its operations following the failure of its big initial public offering in 2020. Ant is still trying to receive a financial holding license that will oversee it more like a bank. Chinese officials have curbed shadow banking over the past few years to lower economic risk.
The approval is another indication that Beijing is easing its position on its enormous internet sector, which has historically been a major driver of growth as the second-largest economy in the world struggles.
Authorities granted approval for the largest group of brand-new major game releases in months last week, enabling Tencent Holdings to restock a pipeline that had been depleted by the crackdown.
After the Ant news broke and the Hang Seng Tech Index continued its uptrend to gain 3.3%, shares of Ma’s Alibaba increased by as high as 7.7%. While Baidu Inc. rose by 6%, Tencent increased by over 4%. According to Leon Qi of Daiwa Capital Markets Hong Kong Ltd., “we view it as a signal on Ant’s regulatory rectification wrap-up.”
Once the funding is finished, he predicted that the consumer division will be able to manage 1.1 trillion yuan in loans. Jiangsu Yuyue Medical Equipment & Supply Co. and Sunny Optical Technology Group Co. are two additional recent investors.
The consumer finance division combines Huabei and Jiebei, Ant’s two most successful online lending businesses. A previous attempt to increase capital to 30 billion yuan has been toned back and is now included in the present plan.
One of China’s bad-debt managers, Cinda Asset Management, canceled a deal to invest 6 billion yuan for a 20% interest in the market leader in consumer financing last year without providing a rationale.
Jack Ma has kept a quiet profile since Ant’s IPO was put on hold. Alibaba reaffirmed that Ma “intends to reduce and thereafter limit his direct and indirect economic interest in Ant Group over time” to a level that does not exceed 8.8%” in a filing in July.
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