Exclusive: China set to fine Ant Group over $1 billion, signaling revamp nears final sources

HONG KONG, Nov 22 (Reuters) – Chinese authorities are set to impose a fine of more than $1 billion on Jack Ma’s Ant Group’s regulatory review.

The People’s Bank of China (PBOC), which spearheaded the revamp of Ant after the Chinese company’s $37 billion IPO was scuttled at the last minute in 2020, is the regulator preparing the fine, five of the sources said.

The central bank has been in informal communication with Ant about the fine in recent months, three of the sources said. It plans to hold further discussions with other regulators about revamping Ant later this year and announce the fine as soon as the second quarter of next year, a source said.

A fine to Ant could help pave the way for the company to obtain a long-awaited financial holding license, seek growth again and ultimately revive its plans for a public market debut.

Ant’s fine would be the largest regulatory fine imposed on a Chinese internet company since Didi Global, the auto transportation firm, was fined $1.2 billion by China’s cybersecurity regulator a July.

The fintech firm’s subsidiary, e-commerce titan Alibaba Group (9988.HK), was handed a record 18 billion yuan ($2.51 billion) fine last year for antitrust violations.

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The sanctions are part of Beijing’s sweeping crackdown on the country’s tech giants that has cut hundreds of billions of dollars from their assets and slashed revenues and profits.

But in recent months, Chinese authorities have softened the tone on the technological crackdown amid efforts to prop up an economy that has been hit by the COVID-19 pandemic.

A fine will likely focus on Ant’s alleged violations related to a “disorderly capital expansion” and the corresponding financial risks its once freewheeling activities have caused, one of the sources said.

Ant and the PBOC did not respond to Reuters requests for comment.

All sources spoke on condition of anonymity as they are not authorized to speak to the media.

COMPANY REVIEW

Chinese authorities abruptly halted Ant’s IPO, which was expected to be the world’s largest, in November 2020, soon after billionaire founder Ma publicly criticized China’s regulatory system for stifling innovation.

In the following months, regulators began to rein in Ma’s empire, starting with the Alibaba antitrust investigation. Ma, one of China’s most successful and influential businessmen, has remained largely out of the public eye since the crackdown.

Regulators have also pushed Ant, whose businesses include payment processing, consumer credit and distribution of insurance products, to revamp its business structure and bring it under tighter regulatory oversight.

Ant has formally undergone a major corporate overhaul since April last year that includes transforming into a financial holding company, subject to rules and capital requirements similar to those for banks.

The overhaul includes merging Ant’s two lucrative microlending businesses into one consumer lending unit and sharing its treasury of data on more than 1 billion users with state-owned companies, a move that is expected to curb its profitability and valuation by reducing some of its activities. Read more

However, the sanction for Ant is unlikely to be finalized until China appoints a number of senior officials to the State Council and other government bodies next year, four of the sources said.

While China’s ruling Communist Party concluded its congress and twice-yearly reshuffle of the central leadership last month, top posts in the cabinet and governing bodies are still subject to change, usually taking place during the annual meeting of parliament in early March.

Central bank chief Yi Gang, 64, is likely to step down as he approaches the official retirement age of 65 for ministerial-level officials.

China’s State Council information office, which handles media inquiries for the cabinet, did not respond to a request for comment.

Shortly before Ant’s IPO failed, the central bank officially issued rules to regulate the country’s vast and often complex financial holding companies, as part of its efforts to curb systemic financial risks.

It has so far approved the establishment of three such companies, including China CITIC Financial Holdings.

The local branch of the central bank in the eastern city of Hangzhou, where Ant’s headquarters is located, received the company’s request to set up a financial holding company in June, two of the six sources and one other person said.

However, the PBOC is unlikely to formally disclose the application until after Ant wraps up its renewal, the sources added.

Reporting of Julie Zhu in Hong Kong; additional reporting by Xu Jing in Beijing; Edited by Sumeet Chatterjee and Muralikumar Anantharaman

Our standards: the Thomson Reuters Trust Principles.

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