China raises scrutiny of financial holding groups ahead of Ant IPO

China is increasing its regulatory scrutiny of non-bank financial companies including Ant Group, the Chinese fintech conglomerate expected to raise as much as $30bn in its initial public offering this year.

State media reported on Thursday that China’s State Council, or cabinet, has approved regulations that would introduce licensing procedures for financial holding companies and, potentially, capital requirements.

The rules stipulate that non-financial enterprises with interests in entities in at least two financial segments, and which hold a majority stake or exercise control over those entities, must apply for a licence to establish a financial holding company, according to state news agency Xinhua.

While the full text of the new rules was not released on Thursday, a draft version of related regulations published by the People’s Bank of China last year included a requirement that financial holding companies hold levels of capital “commensurate with the scale of their assets and risk level”. 

Ant Group was among financial holding companies named in the 2018 financial stability report published by the People’s Bank of China. Other groups on the list included conglomerates China Evergrande, HNA Group and Fosun International.

An employee at one of the companies likely to be affected by the new regulations said they were meant to “put a lid on acquisition sprees”. Airline-to-insurance business HNA has come under particular pressure after buying up more than $40bn in global assets.

Analysts said there was little chance the regulations would derail Ant’s IPO plans, however.

“Having [financial holding companies] regulated in China is not going to surprise anyone,” said a director with one Chinese brokerage, who said the rules were widely expected to be approved this year.

He added that while Ant had plenty of capital, “holding a little bit more capital is always a little bit annoying for these companies because they want to do more business with it”.

One equities analyst said it “would be very surprising for Chinese authorities to pass policies” that might disrupt Ant’s listing, given that the company had probably already received approval for a dual IPO in Shanghai and Hong Kong.

Ant Group declined to comment on the potential impact from the new regulations.

In its draft prospectus, the company signalled it was preparing for the new PBoC regulations and said one of its subsidiaries would apply for the financial holding company licence when the rules were implemented. 

Facing stiffer financial regulation in China since a crackdown on risk began in 2017, the Hangzhou-based company has gradually transformed its business from directly providing financial services to aggregating and selling the offerings of others to its more than 1bn users. It has also changed its name, from Ant Financial to Ant Group.

Still, one of its affiliates, MYbank, lends to small businesses and has a substantial balance sheet like a traditional bank.

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