HONG KONG -- China's central bank has told Alibaba Group Holding affiliate Ant Group to transform into a financial holding company, paving the way for the fintech giant to clear the regulatory obstacles that scuttled a planned initial public offering shortly before its market debut.
The overhaul for Ant revealed Monday clarifies the rules under which the financial technology company will have to operate and cuts the risk that it will be broken up, which some investors had feared.
The order comes just days after Alibaba was slapped with a record Chinese antitrust fine.
Alibaba, Ant's largest shareholder, soared 6.5% on the Hong Kong exchange Monday on hopes the $2.8 billion penalty concludes Beijing's crackdown on the e-commerce group for now.
Ant, originally an online payment service, has evolved into a virtual financial services mall for everything from loans to mutual funds, insurance policies and travel bookings. Most of the financial products are provided by third parties that pay service fees on the sales they receive through Ant's platform, and over 90% of the platform's 1 billion users now access the digital payment app Alipay for more than just payments.
The People's Bank of China said Ant officials were summoned to a meeting on Monday with banking, securities and foreign exchange regulators, at which the company was ordered to rectify its business in five areas including an alleged data "monopoly," unfair competition in the payments business and a liquidity risk in its fund product, according to a statement.
Ant Group has formulated a rectification plan to address the five points raised by the regulators, the company said in a statement.
The plan means Ant will be covered by a regulation applied to the nation's banks, calling for more capital and liquidity. Before the plan was unveiled, analysts and investors said the plethora of rules Ant likely faced would cut its market valuation below $180 billion from more than $310 billion at the time of the planned IPO.
The regulators "require Ant Group to face up to the serious problems in financial business activities and the seriousness of the rectification work, to benchmark the regulatory requirements and the proposed rectification plan," according to the central bank statement.
The plan also forces Ant to shrink the assets under management at its money market fund, remove the links between its payments business and other financial products including its Jiebei and Huabei consumer lending services businesses and improve corporate governance.
Pan Gongsheng, deputy governor of the People's Bank of China, said a "comprehensive, viable rectification plan" for Ant has been formulated under the regulators' supervision over the past few months. He also said all financial activity in the country will be supervised and that financial technology companies in China should focus on serving the real economy, avoid financial risk and not hide behind technology to sidestep rules.
Ever since Ant filed for its IPO in August, the company has faced a barrage of rules aimed at curtailing risks in the digital lending sector. Other rules include a limit on use of securitization to fund consumer loans, a cap on loan rates, new capital and license requirements for financial conglomerates and proposals for measures to curb market concentration in digital payments.
Ant in a statement said it will set up a personal credit reporting company, which will apply for a personal credit reporting license and strengthen the protection of personal information, to prevent the abuse of data. The company also will bring its consumer lending units under a consumer finance company, it said.