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Chinese Regulators Tell Ant to Return to Its Roots

Authorities require Ant Group to overhaul business.

Ant, in a year that had it gone differently, would have been the record holding company for the most amount of cash raised from an IPO (Initial Public Offering - when companies sell their shares to the public for the first time). It would also have been the most valuable financial institution globally, surpassing the big American banks. Things however, did not go according to plan, and now regulators have asked Ant to return back to its payments roots.

What happened to Ant’s IPO?

The IPO was scheduled to hold on November 5, 2020. It was expected that the IPO would have raised about $37 billion, surpassing the current record held by Saudi Arabia’s oil company, Aramco, which raised $29 billion. Furthermore, it would have had an estimated valuation close to $300 billion and would have been listed in both Hong Kong and Shanghai Stock Exchanges.

Ant's founder, Jack Ma. Image source: Bloomberg.

Jack Ma, a week before the planned IPO, openly condemned current banking regulations in China. According to him, the rules were not suited to fostering innovation. In response, new regulations were introduced, especially targeted at online lending, ultimately leading to Ant’s planned IPO halting. Ant’s online and lending business account for nearly 40% of revenues. On November 3, Shanghai Stock Exchange suspended Ant’s IPO after the planned listing was said to have major issues under the new regulations. Ant voluntarily pulled out of listing in Hong Kong on the same day.

Return to your roots, Ant.

China’s central bank summoned the executives of Ant last weekend, telling them to rectify the company’s lending, insurance, and wealth management services. Ant provides online payments, lending, insurance, and asset management services, as well as a few other digital services.

Ant has been ordered by regulators to return to its roots as a provider of payments services. This threatens Ant’s growth in its most lucrative businesses of consumer loans and wealth management. The internet company has also been ordered by China's central bank to establish a separate financial holding company to hold sufficient capital and protect personal data.

Authorities blasted Ant for a below par corporate governance, for scorning regulatory requirements, and for engaging in regulatory arbitrage. China’s central bank accused the internet giant of using its dominance to exclude rivals, in the process hurting the rights and interests of its consumers.

Ant, in a statement, said it will set a special team to create proposals and a timetable for an overhaul. Its daily executives are part of a task force that has interactions almost daily with Chinese regulators. Ant will, according to the statement, strengthen the business foundation to grow with full compliance, and will continue to focus on innovating for social good and serving small businesses.

China in focus:

Population: 1.398 billion (2019)

GDP: $14.3 trillion (2019)

GDP per capita: $10410 (2019)