To The Moon

Jack Ma’s Ant Group is poised to apply for a key financial license as soon as this month, according to people familiar with the matter, a sign that its lengthy overhaul following a squashed 2020 listing is getting closer to satisfying China’s financial regulators.

The People’s Bank of China intends to accept Ant’s application to become a financial holding company once it’s submitted and will then start a review process, which could take months, said the people, asking not to be identified discussing a private matter. Officials will examine Ant’s capital strength and business plans, as well as the compliance of its shareholders and senior management before a final signoff.

The moves would mark a crucial development in Ant’s revamp, affirming that the company can maintain its financial operations under the supervision of the central bank. While that clears a path for it to eventually revive a public offering, Ma’s fintech juggernaut will be a much diminished enterprise, with policy makers dramatically curbing its growth in consumer finance and its ability to leverage its ubiquitous payments app.

Shares of $Alibaba(09988)$, which owns a third of Ant, have swung wildly in recent days as investors try to gauge how close policy makers are to concluding their examination of Ant’s operations. The stock climbed Friday after Reuters reported that Ant’s application for a financial holding company had been accepted, before giving up most of the gains when state-backed media refuted the report, citing people close to the central bank.

Dialing down scrutiny of Ant -- one of most high-profile casualties of President Xi Jinping’s sweeping clampdown on the country’s tech giants -- would offer powerful evidence that policy makers are following through on pledges to support the industry.

“Ant has been steadily moving forward with its rectification work according to regulatory requirements, including preparing materials to apply to set up a financial holding company,” a spokesperson for the company said in an emailed response to questions. “We do not have a timetable to submit this application.”

The PBOC didn’t immediately respond to a request seeking comment.

Alibaba shares pared losses of as much as 3.1% to trade about 1% lower in US pre-market following Bloomberg’s report.

In a meeting presided by Xi, the government announced that it approved work plans for oversight of payment and fintech companies, according to China’s state broadcaster on Wednesday. China plans to enhance regulation of financial holding companies, and promote healthy development of payment and fintech sectors.

Under the official framework laid down last year, Ant needs to fold all its financial units into a holding company and be regulated like a bank with more scrutiny on its shareholder structure and tougher capital requirements. The PBOC has so far accepted five applications for financial holding firms and approved two of them after at least six months of review.

The crushing of Ant’s US$35 billion IPO in November 2020 sent shock waves across the financial world, burning investment firms from Carlyle Group to Temasek Holdings that had expected a windfall. It also marked the beginning of a broader crackdown that ensnared some of China’s fastest-growing companies, erased more than US$1 trillion of market value and caused a reckoning within the country’s billionaire class.

While investors are likely to welcome any signs that the tech crackdown is easing, a return to the heady days of old appears unlikely. Myriad regulations imposed on Ant over the past two years mean the company is worth a fraction of its former self, according to some early backers. Fidelity Investments, for instance, slashed its valuation estimate for the firm to about US$78 billion last June from US$235 billion just before the IPO was abruptly suspended.

Regulators now have routine inspections to examine dealings between Ant and financial institutions, and continue to curb how much they can jointly lend. Before the crackdown, Ant had a thriving business doling out small unsecured loans in partnership with banks via its Huabei and Jiebei brands. Overall, its CreditTech business was its single biggest revenue maker, contributing 39% of the total in the first half of 2020.