By Julie Zhu
HONG KONG (Reuters) – Chinese group Ant is in talks with other shareholders of its new consumer credit unit to boost the company’s capital as the fintech giant prepares to back down lucrative microcredit funds, people familiar with the matter said.
It would need additional capital of 30 billion yuan ($ 4.6 billion) to meet regulatory requirements, said one of the people with direct knowledge of the plans.
Ant plans to integrate most of its microcredit business into the unit – the equivalent of around 1,000 billion yuan ($ 155 billion) in outstanding loans – a move that will allow it to maintain operations at the same time. nationwide and grow more easily, two sources said.
The plans reflect intense regulatory pressure on Ant to curb some of its operations and subject them to bank-like rules and capital requirements. That pressure threw Ant’s $ 37 billion IPO last year and saw him formulate plans to move to a financial holding structure.
Ant owns two lucrative microcredit businesses: Huabei, which works like a virtual credit card, and Jiebei, a provider of short-term consumer loans. Both based in the city of Chongqing, in the southwest, they constitute the bulk of its credit business which represented nearly 40% of Ant’s turnover in the first half of 2020.
But under new draft rules released by China’s central bank in November, Huabei and Jiebei are expected to limit their operations to Chongqing unless they obtain new domestic licenses – a potentially lengthy and uncertain process.
It would not be a problem if microcredit companies were part of the consumer credit branch.
Another major benefit of moving businesses to the consumer credit unit is that consumer credit companies can lend up to 10 times their share capital, while online microcredit companies are only allowed at leverage ratios of 2 to 3 times.
The new consumer credit company, called Chongqing Ant Consumer Finance Co Ltd, was established in August 2020 but has yet to obtain its business license, three sources said.
“Regulators will not easily give the green light to launch the company until it fully complies with capital adequacy rules,” one of the people said.
The sources were not allowed to comment on the case and declined to be identified.
Ant, a subsidiary of Alibaba Group Holding, declined to comment. The China Banking and Insurance Regulatory Commission did not immediately respond to a request for comment.
Microcredit – loans for small purchases such as smartphones, cameras and household appliances – is extremely popular in China.
Ant and other technology platforms such as WeBank backed by Tencent and JD.com Inc have become powerful third-party intermediaries that attract borrowers, take up to one-third of profit margins on loans while the banks they partner with. passively provide credit.
Ant owns 50% of the consumer credit unit, which it plans to develop to become the largest consumer credit player in China.
Hong Kong-based Nanyang Commercial Bank has a 15% stake, while Taiwan’s Cathay United Bank holds 10%. Other co-founders include battery maker CATL and Alibaba-backed intelligent transportation services company China TransInfo Technology.
If other shareholders are reluctant to provide additional capital, Ant plans to bring in new investors, two people said.
Several shareholders want more clarity on the outlook for the listing of the consumer credit unit, they added.
Shareholders are also hoping their stakes in the unit will be converted into shares in Ant’s financial holding company, which is likely to be made public, the people said.
Most of the other shareholders did not respond to requests for comment. CATL returned the requests to Ant.
($ 1 = 6.4686 Chinese yuan)
(Reporting by Julie Zhu in Hong Kong and Cheng Leng in Beijing; Editing by Sumeet Chatterjee and Edwina Gibbs)