Chinese Fintech Ant Group’s Business Restructuring May Impact its Revenue and Profit Growth, Could Force Firm to Raise More Capital

After facing increasing pressure from Chinese authorities, billionaire Jack Ma’s Fintech firm Ant Group is now focused on restructuring its business operations in order to serve as a financial holding company.

The Ant Group has also been focused on positioning itself as an Internet-tech firm during these past few years, instead of just being a financial services provider. As noted by the SoFi team, this approach has helped the firm’s valuation soar but has also raised concerns from financial regulators in China.

Ant’s senior management team was recently called into a meeting with Chinese regulators (in December 2020). During the meeting, Chinese authorities had accused Ant of “engaging in regulatory arbitrage.” The nation’s government had an extensive list of demands for Ant Group, which included effectively securing customer data, changing its corporate governance model, and restructuring its operations as a financial holding company.

In 2020, the Ant Group was planning an initial public offering that would have valued the business at over $300 billion—higher than many of the largest global banking institutions. That IPO, however, was called off in November 2020. Ant’s management had stated in its listing prospectus that it planned for one of its subsidiaries to be designated as a financial holding company, the SoFi team noted.

That holding company would aim to control Ant’s licensed or authorized financial businesses such as asset management and consumer lending. The move to restructure Ant Group’s operations as a financial holdings company comes as “a bit of a surprise for many,” SoFi confirmed.This wasn’t really something that Ant’s executive team and the Fintech firm’s stakeholders had in mind a few months back.

After its restructuring phase, Ant will have to follow the same strict regulatory requirements that currently govern traditional banks in China, SoFi explained. This might affect its bottom line (or profits) and plans to expand its business operations. Ant’s restructuring plan will require prior approval from regulatory authorities, but it may be finalized by the start of the Lunar New Year holiday in mid-February, SoFi noted.

As explained by the Fintech firm:

“The overhaul of Ant’s structure could significantly cut the company’s revenue and profit growth. To meet regulatory requirements, Ant may be forced to raise more capital. Already, Ant is lowering borrowing limits for individuals on its lending platform—an early signal that the company could be downsizing for regulatory approval. These shifts could potentially diminish Ant’s valuation, which was based in large part on the firm’s potential for growth and future profitability.”

SoFi added:

“What is not yet apparent is how Ant’s nonfinancial business will be impacted by the restructuring. Ant is involved in developing blockchain technology, digital-lifestyle services, and artificial intelligence. These aspects of the business have previously been pointed to as drivers of growth, and it is uncertain how they will fit into a financial holdings structure.”

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