Ma Yun's Surrender... Ant Group Ultimately Becomes a Financial Holding Company

Dream of Transforming into an IT Company Dashed
Strict Oversight by Authorities Required

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Ant Group, the fintech affiliate under Alibaba, China's largest e-commerce company, will ultimately convert into a financial holding company. This marks the end of Jack Ma's dream to transform the company into an information technology (IT) firm free from financial regulatory oversight in order to maximize corporate value.

On the 27th (local time), the Wall Street Journal (WSJ), citing sources familiar with the matter, reported that Ant Group has submitted a business restructuring plan based on this concept to the authorities.

After Jack Ma criticized Chinese authorities last October and Ant Group's initial public offering (IPO) was halted, it is interpreted that he has effectively surrendered.

In China, financial holding companies that own financial subsidiaries must undergo strict management and supervision by financial regulators. Initially, Ant Group planned to create one of its subsidiaries as a financial holding company to control financial subsidiaries, while the parent company, Ant Group, would remain an IT company free from regulatory constraints to maximize corporate value.

The plan to simultaneously list on the Shanghai and Hong Kong stock exchanges at the end of last year to raise approximately $34 billion (about 37.6 trillion KRW) was part of this strategy.

However, this move makes it inevitable to revise such a strategy.

Ant Group's listing plan was halted after Alibaba founder Jack Ma strongly criticized Chinese financial authorities on October 24 last year at an event attended by high-ranking officials including Wang Qishan, Vice President of China, and Yi Gang, Governor of the People's Bank of China, stating that "Chinese financial authorities still operate like pawnshops that require collateral for loans."

Since then, Alibaba's market capitalization has dropped by about 25%, and Jack Ma's wealth has decreased from $62 billion to the $40 billion range. Chinese authorities summoned Ant Group's management and delivered five major improvement demands, including the establishment of a financial holding company.

The business restructuring plan submitted by Ant Group is expected to be finalized before the Lunar New Year holiday next month after review by the Financial Stability and Development Committee (FSDC) led by Vice Premier Liu He.

The WSJ reported, "If the business restructuring plan submitted by Ant Group is finalized as is, various regulations will apply, including the requirement to pay a huge capital contribution as a financial holding company," adding, "This will limit profits and growth, negatively impacting corporate value."