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The delayed initial public offering for Ant Financial is causing modest risk-off sentiment for China tech exposures. But does it change Ant Financial’s long-term business outlook? A thread on why we’d look past this delay.
1. What non-state owned companies in China need the most-- particularly when making competitive inroads into sectors like finance or energy where state-owned companies dominate-- a regulatory stamp of approval by the state.
2. The top four regulatory agencies “interviewed” Ant, which could also mean after the dust settles, Ant Financial could be the leading non-state-owned player in Chinese financial industry with a stamp of approval.
3. These regulators were: People’s Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), and State Administration of Foreign Exchange(SAFE). Other FinTech operators likely envy in silence now.
4. Delving into details of the “Internet Small-loan Regulatory Rules (Seeking Feedback)” released in this news whirl. Ant BENEFITS by making future entries harder after regulation. Ant will likely get exemption from cross-province restrictions for future small-loan companies.
5. The biggest contention is how much leverage Ant will be allowed under new rules. Small loan companies could have to put up 30% of their own capital. Ant Financial’s business is different with very small amount of loans using its own capital.
6. Ant’s main business uses proprietary data on borrower’s businesses to match Chinese banks’ loans with borrowers to earn fees. They’ll negotiate on appropriate leverage but Ant is unlikely to be subject to the 30% leverage rule as Ant is not making its own loans.
7. The regulators put an official guardrail on Ant Financial’s leverage ratio to reduce systematic financial risk. It also slows down others moving into this business. Regulators perceive this internet loan business growing too fast, creating higher barriers that benefit Ant!
8. There are populists pushing back against consumer loans as predatory loans with horror stories of suicides when borrowers cannot pay back debt. As Chinese society tests a credit-based consumption world, counter to the savings culture, regulators are under pressure to act.
9. Finance is considered by the state as the blood circulating the Chinese economy. It’s much better for Ant to go through regulations now so it is officially certified as good blood.
10. It happened that Mr. Jack Ma gave the speech at the Bund Forum that started all the media attention. We have a blog coming soon on China macro economic messages coming from that forum. Stay tuned for some unorthodox views. Thanks to my team for views in this thread!
