- Ant Group is transforming into a financial holding company.
- The company owns Alipay.
- The restructure is bound to be over by mid-February.
Alibaba’s Ant Group is working to restructure its business before February in a bid to meet regulatory compliance guidelines. This is according to a Fox Business report. According to people familiar with the matter, the firm is looking to convert into a financial holding company.
The move will put it under the same regulatory oversight as traditional banks in China.
Its parent company, Alibaba, came under regulatory scrutiny in November following a controversial speech by founder Jack Ma in which he criticized the nation’s regulators for stymying industrial growth.
The controversial speech led to a halt of Ant Group’s planned $37 billion IPO.
Ant Group has being accused of practicing financial arbitrage. The company has been offering unsecured loans in China will little oversight and adherence to financial guidelines.
The agency does this through its Alipay subsidiary, which is presently the most dominant online payments firm in China with over one billion users. Over 500 million people have used its financial network to get loans. The company is among those targeted by regulators in the Alibaba breakup push.
Before its scrapped November IPO, Ant Group’s valuation had surpassed $300 billion.
The transformation into a financial holding company will help it retain its financial businesses which include consumer lending.
In December, Chinese regulators forwarded a few adjustment guidelines to Ant Group. The company was advised to focus on its payment platform, enhance its data protection safeguards, reform into a financial holding company, and adhere to financial security protocols.
Alibaba, Ant Group’s parent company is set to publicize its earnings report on February 2. The report will undoubtedly be released in the middle of a crisis. Alibaba shares have plunged 16 percent since Ant Group’s suspended IPO.
The company is expected to wade through deep waters in the short term due to wavering investor sentiment.
According to Bloomberg Intelligence analyst Vey-Sern Ling, some regulatory aspects such as the removal of exclusivity requirements will undoubtedly hurt the company’s margins.
“The extent of regulatory enforcement is still quite unclear. Practices like merchant exclusivity will no longer be possible. And Ant Group’s valuation will be much lower after the restructuring.
From an operational and fundamental point of view, I don’t recall anything more serious than the events now.”
Competition from formidable rivals such as JD.com, Pinduoduo Inc., and Tencent Group also makes the situation a bit grim.
Once among China’s most revered corporations, Alibaba is likely to face penalties if ongoing investigations determine that it was involved in anti-competition practices. It is likely to pay a fine of up to 10 percent of its annual revenues which is currently in the region of $8 billion.
That said, the conglomerate is expected to recover from its current woes by the end of the year. According to a recent Moody’s Rating valuation, the company has an A1 issuer rating, which means it still has significant long-term growth potential.