Ant will hold a 50% stake in the new unit, which forms a key part of the restructuring that was ordered to resolve regulatory concerns.
The CBIRC (China Banking and Insurance Regulatory Commission) has announced that Ant Group has been given the green light to begin operating its new consumer finance company.
The consumer finance unit – known as Chongqing Ant Consumer Finance – will become the centrepiece of Ant’s restructured lending business, which issued about one-tenth of China’s non-mortgage consumer loans last year through the Alipay app.
The scale of the business has been a concern for regulators since last November’s suspension of Ant Group’s planned listings in Hong Kong and Shanghai. Ant Group was ordered to become a financial holding company, restructure its businesses, and accept greater regulatory supervision.
The newly licensed unit will be allowed issue consumer loans, borrow from banks and issue bonds, the FT reports. Ant’s two main consumer lending products — Huabei and Jiebei — will shift to the unit within six months. Huabei is a virtual credit card product while Jiebei is a consumer loan product.
Ant will contribute CNY 4 billion (USD 625 million) in registered capital for a 50 percent stake in the business. Minority shareholders include Nanyang Commercial Bank, battery maker Contemporary Amperex Technology and China Huarong Asset Management, among others.
“Under the guidance of regulators, Ant will work with other shareholders of Chongqing Ant Consumer Finance Co., Ltd. to serve the needs of consumers, and to continue enhancing the quality of financial services and risk management capabilities,” an Ant Group spokesperson said on Thursday (3 June).
During the first six months of 2020, revenues from Ant Group’s lending fees contributed 39 percent of total group revenue. The change means that Ant will have to share its profits with new partners.
In addition, regulations for consumer lending companies will restrict the new unit to lending only 10 times its registered capital, or roughly CNY 80 billion. As of 30 June last year, Ant had CNY 2.2 trillion in outstanding loans, which means the unit may need to raise additional capital or exit some business, the FT says.
The new licence will allow Ant to continue packaging a portion of the loans it issues as asset-backed securities, however the scale of its ABS issuance is likely to continue to be strictly controlled. Last month, two of Ant’s ABS issuances were cancelled in Shanghai.