China Tells Banks, State Firms to Report Exposure to Jack Ma’s Ant

(Bloomberg) — Chinese authorities told the nation’s biggest state-owned firms and banks to start a fresh round of checks on their financial exposure and other links to Ant Group Co., renewing scrutiny of billionaire Jack Ma’s financial empire, according to people familiar with the matter.

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Multiple regulators, including the banking watchdog, recently told institutions under their oversight to closely examine all exposure they had to Ant, its subsidiaries and even its shareholders up to January, said the people, asking not to be identified as the matter is private. Those people described this as by far the most thorough and wide-ranging look into deals with Ant and said institutions were told they must report findings back as soon as possible.

It was unclear what triggered the new scrutiny or whether it will lead to any actions or conclusions by regulators, the people said. The National Audit Office is leading the initiative, two of the people said. The China Banking and Insurance Regulatory Commission and the top auditor didn’t immediately respond to requests seeking comment. Ant declined to comment.

More than a year after the Chinese government snuffed out the biggest initial public offering in history by Ant, Beijing has showed no letup in a crackdown that has snowballed into an assault on every corner of China’s technosphere. Officials have handed out billions of dollars in antitrust fines to end the domination of a few heavyweights as President Xi Jinping pushes for more “common prosperity.”

Chinese technology shares slumped for a second session Monday, with Tencent Holdings Ltd. sinking 5.2% due to renewed fears Beijing may roll out more restrictions for private enterprise. Meituan lost $26 billion of market value on Friday after China issued new guidelines asking for food delivery platforms to cut fees, underscoring that investor angst over the nation’s tech giants remains high.

The regulations and probes have pummeled the shares of firms such as Alibaba Group Holding Ltd., which owns a third of Ant, and Tencent, as well as dented their profits and growth and forced some to shelve listing plans. The Hang Seng Tech Index is trading near its lowest level versus its 12-month forward earnings and sales forecasts.

Ant was hit the hardest among them all. Beijing scuttled the fintech giant’s $35 billion IPO in November 2020, ordering it to overhaul businesses including lending, insurance and wealth management, and set up a financial holding company so it could be regulated like a bank.

As part of the restructuring, Ant has ramped up its capital base to 35 billion yuan ($5.5 billion) and moved to build firewalls in an ecosystem that once allowed it to direct traffic from Alipay, with a billion users, to services like wealth management, consumer lending and delivery. Consumer loans jointly made with banks were split from its “Jiebei” and “Huabei” brands. Assets under management at its money-market fund Yu’ebao — once the world’s largest — dropped by more than a third last year to 765 billion yuan by December.

The process was delayed last month, however, after state-owned bad-debt manager China Cinda Asset Management Co. surprisingly backed out of a plan to take a major stake in Ant’s consumer finance unit. The fintech firm has yet to apply for a financial holding company license.

A least a dozen Chinese banks have been paring their years-long cooperation with Ant on consumer lending since the clampdown.

Meanwhile, the nation’s top anti-graft group in January made rooting out corruption tied to “disorderly expansion of capital” one of its priorities. A month later it arrested a former party chief of Hangzhou — the home city of Ant and Alibaba — on corruption charges, including using his influence to help his younger brother’s businesses. One of those companies had received investment from a firm controlled by Ma’s Ant, according to a local media report in August. Neither Ant nor Ma have been accused of wrongdoing related to the case

What Bloomberg Intelligence Says:

“Ant Group, China’s fintech behemoth, faces fading earnings prospects and a valuation plunge due to Beijing’s regulatory crackdown. Its June-quarter profit rise was mostly driven by investment gains rather than organic growth. Ant’s profit on credit will more than halve, with group valuation plunging to $71.5 billion.”

–Francis Chan, banking & fintech analyst

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The myriad restrictions mean Ant is worth a fraction of its former self as its growth prospects wane, according to some of its early Wall Street backers. Fidelity Investments slashed its valuation estimate for at least the second time last year to about $78 billion as of June 30. Others are more optimistic: BlackRock Inc. values the company at $174 billion and T Rowe Price Group Inc. views it at $189 billion. Ant fetched a $280 billion pre-money valuation before its IPO was halted.

(Updates with more details in the third paragraph.)