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Ant Group’s IPO Green Light Comes With Speed Bumps Ahead 

Green light for an IPO – but speed bumps on the road ahead.

The on/off status of Ant Group’s initial public offering seems switched, now, to “on” – at least as signaled by China’s central bank governor. And in the meantime, Ant is tackling a major restructuring.

Yahoo! Finance reported that Bank Governor Gang Yi has “suggested” that an IPO might be “reconsidered.” As the governor told a meeting of the World Economic Forum: “I’d say that [if] you just follow the standard of legal instruction, you will have the result.” But the issues confronting Ant and other firms bent on bringing finance into the digital age are thorny in China, where the full weight of regulation has yet to be felt, but looms large.

Speaking generally of the FinTech landscape in that country, Yi said at the meeting that “that benefit is obvious, but at the same time we can also see some risks to consumer information and protection, and also some monopoly potential and some misuse of the monopoly power.”

The ”go-ahead to go ahead” with the IPO comes as it was reported on Wednesday (Jan. 27) that Ant is restructuring into a financial holding company that in turn will be overseen by China’s central bank, as reported by The Wall Street Journal, citing “people familiar with the matter.” As noted in this space at the end of last year, financial regulators had been looking to curb Ant’s influence, in part by directing that the company shift its focus back to its mainstay payments business.

More Regulations Loom

In the wake of that restructuring, Ant would be subject to more regulations. The Journal noted that previously, Ant had planned to have one of its subsidiaries recast as a financial holding company and contain its asset management and consumer lending activities. Now, with an overall designation as a financial holding company, regulatory costs will increase, as will the hurdles that must be cleared. Any restructuring plan must get approval from bodies such as the Financial Stability and Development Committee – and moving forward, all of the company’s activities would be subject to oversight and capital requirements.

As to the specific changes that would impact the overall financial services industry as well as Ant’s payments and lending activities (including Alipay, which counts more than one billion users in the country), as reported by Bloomberg: Online lending companies, which include Ant, would have to provide 30 percent of the capital for loans; Ant currently provides about 2 percent of that capital. Also, shareholders would be prohibited from controlling more than one micro-lender that is national in scope, which might constrain at least some growth opportunities for Ant.

Increased oversight leads to increased costs, which in turn might pressure margins. Publicly listed companies tend to be judged on top-line growth opportunities and profitability of operations. Headwinds on those metrics could produce lower multiples, which in turn may translate into (relatively) lower stock prices. All of that may translate to an IPO that’s less buoyant than it otherwise might have been – a Pyrrhic victory of sorts – though time will tell.

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