Beijing puts Ant on a shorter leash

[HONG KONG] Ant mania is getting a reality check from Beijing. Days ahead of the company's record-setting US$34 billion initial public offering (IPO), founder Jack Ma was hauled in by regulators for a chat. Newly unveiled rules also would treat technology middlemen more like banks.

Chinese authorities on Monday released a terse statement that the central bank and three financial regulators had held a rare joint meeting with Mr Ma and two Ant executives. Details were not disclosed, but the assemblage comes less than two weeks after Mr Ma publicly blasted the system of oversight.

The outspoken billionaire railed against the Basel Accords, a series of international regulations that require banks to hold a certain amount of capital, as outmoded for the modern era. He also accused Chinese lending institutions of having a "pawnshop" mentality of using collateral instead of advanced credit ratings and watchdogs of not knowing the difference between regulation and supervision.

Whether Mr Ma was reprimanded or not, he and Ant shareholders have bigger problems to consider. Draft rules for online micro-lenders, including caps on leverage, were released on Monday, too. For Ant, they could have a far-reaching impact on its sizeable credit business, which matches companies and consumers with lenders. One proposal, for example, would require online companies to contribute at least 30 per cent of the capital from their own balance sheets for certain loans.

The wording is frustratingly vague. In the worst case, it could upend Ant's business model, which allows the company to process huge amounts of credit - 1.7 trillion yuan (S$346.53 billion) of consumer loans as at June - without any of the capital constraints of a typical bank. Under existing capital-to-leverage ratios, analysts at Bernstein estimate if Ant is forced to underwrite 30 per cent of loans, up from 2 per cent, it would have to triple net assets at its micro-lending subsidiaries, to some US$16 billion.

That's probably manageable, given Ant's mooted market capitalisation of over US$300 billion when the shares are due to start trading on Thursday. Even so, the latest measures are the clearest sign yet that despite Ant's desire to be a techfin company - putting technology ahead of finance - Beijing is appropriately eyeing Mr Ma's colossus the other way around.

China's central bank and three financial regulators held talks on Nov 2 with top Ant executives, including founder Mr Ma, according to a statement from the China Securities Regulatory Commission.

On the same day, the People's Bank of China and the China Banking and Insurance Regulatory Commission published new draft rules for online micro-lending. The draft rules are open to public feedback until Dec 2.

One rule would require firms like Ant to shoulder default risks together with banks, while limiting leverage and lending amounts - all approaches used to regulate banks. An Ant spokesperson said the company would "implement the meeting opinions in depth", Reuters reported.

Ant on Oct 26 priced shares for its US$34 billion IPO in Hong Kong and Shanghai, in what will be the world's largest debut. The shares are scheduled to begin trading on Nov 5.