Ant Group’s Consumer Finance Restructuring Hits Speedbump as State Firm Decides It Won’t Invest

Ant Group Co. Ltd.’s consumer finance unit is adjusting its plan for a 22-billion-yuan ($3.5 billion) funding round after a state-owned bad-debt manager pulled out.

China Cinda Asset Management Co. Ltd. announced Thursday it had withdrawn from the share subscription agreement that would have seen it inject 6 billion yuan into Chongqing Ant Consumer Finance Co. Ltd. The decision came after “further prudent commercial consideration and negotiation,” Hong Kong-listed Cinda said.

This could add difficulties to the unit’s planned — and ordered — takeover of Ant Group’s consumer lending businesses, as it first must increase its registered capital to meet regulatory requirements.

Ant Consumer Finance told Caixin that it respects Cinda’s decision. The company will, under the guidance of regulators, negotiate with relevant investors to settle on a new funding plan as soon as possible and ensure that the rectification of Ant Group’s consumer credit business is carried out.

The original deal would have boosted Ant Consumer Finance’s registered capital from 8 billion yuan to 30 billion yuan, according to a Cinda filing to the Hong Kong Stock Exchange in December. The distressed-asset manager would have held a 24% stake in Ant Consumer Finance, if the deal went through.

Ant Consumer Finance was cleared for operation in June 2021, and is intended to gradually take over the online consumer lending services Huabei and Jiebei — two of Ant Group’s biggest money-earners — as part of the fintech giant’s plan to remake itself. After its failed $35 billion IPO in November 2020, the affiliate of e-commerce giant Alibaba Group Holding Ltd. was ordered to overhaul its business, including by moving lending operations into its consumer finance unit.

The disrupted share sale casts uncertainty on how the Ant Group unit will boost its capital to meet regulatory requirements.

Regulations issued by China’s top banking regulator in February 2021 require that when online loans are jointly funded by banks and partner institutions, the latter has to contribute at least 30% of the credit. At the end of June 2020, Ant Group had 1.7 trillion yuan in outstanding consumer loans through Huabei and Jiebei. Ant Consumer Finance’s current 8-billion-yuan registered capital is far from adequate.

Zeng Gang, a deputy director-general of the National Institution for Finance and Development, said in the past few years, regulators have been guiding asset management companies to focus on their core businesses. The need to focus on managing distressed debts could be Cinda’s reason for scrapping its investment plan, he noted.

Four other investors in the original funding plan were Jiangsu Yuyue Medical Equipment & Supply Co. Ltd., Sunny Optical Technological Group Co. Ltd., Guangzhou Boguan Information Technology Co. Ltd., and Chongqing Yufu Capital Operation Group Co. Ltd. Each of them would have held a stake of less than 10% if all went to plan.

On Friday, Jiangsu Yuyue and Sunny Optical both announced the suspension of their share purchase due to Cinda’s withdrawal, adding that they will assess the revised deal once details emerge.

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Source: Caixin Global