China’s Ant Group seeks new investors after sudden withdrawal

A consumer-finance unit of China’s embattled Ant Group on Friday said it would search for new partners after three investors, including a state-owned company, pulled out of a capital-raising plan less than a month after it was announced.

The shock withdrawal could deal a blow to Alibaba-backed Ant Group’s turnaround plans, analysts say. In November 2020, the operator of the Alipay mobile payment service put a $35 billion initial public offering on ice amid a regulatory crackdown by Chinese authorities.

Late Thursday, state-owned China Cinda Asset Management, which had planned to buy a 20% stake in Ant Group’s Chongqing Ant Consumer Finance, said it was scrapping the 6 billion yuan ($944.73 million) deal, citing only “further prudent commercial considerations.”

In a statement filed to the Hong Kong Stock Exchange Thursday, Cinda said it had negotiated with the consumer finance spinoff – in which Ant Group holds a 50% stake – before the pullout announcement.

Then, on Friday, two more investors, Jiangsu Yuyue Medical Equipment & Supply and Sunny Optical Technology, said they were also suspending their respective 1.1 billion yuan and 1.8 billion yuan plans to raise their stakes in Chongqing Ant.

In response, the unit of Ant Group said it “fully respects” the decisions made by its planned investors and would search for new capital-raising partners.

“Under the guidance of regulators, the company will actively hold discussions with investors, continue to finalize the capital increase proposal as soon as possible in accordance with market principles, and ensure the rectification work on the consumer finance business is effectively carried out,” the company said in a statement on Friday.

Ant Group has been undergoing a restructuring after what was then to be the world’s largest-ever IPO was called off in late 2020, as Chinese regulators intervened shortly before share trading was set to start in Hong Kong and Shanghai.

Since then, Chinese authorities have taken aim at many of the country’s other internet companies as part of an effort to rein in their market power.

Regulators ordered the Alibaba affiliate to separate the back end of two microloan businesses from the rest of its financial offerings and bring in outside shareholders.

That led to the creation of Chongqing Ant Consumer Finance, which was founded in June.

Ant Group held a 50% controlling stake in the unit while Cinda owned 15% of the company through its subsidiary Nanyang Commercial Bank Ltd. Jiangsu Yuyue had a 4.99% stake.

Analysts had said boosting state-owned Cinda’s holding could give Chongqing Ant more influence and oversight over its own business.

In December, Cinda, Yuyue, and four other new investors, including Sunny Optical, announced they would boost their stakes in Chongqing Ant, which would have increased Cinda’s total interest in the company to 24%, making the asset manager its second-biggest investor followed by Sunny Optical with a 6% stake.

Ant Group’s 50% holding would have remained unchanged.

Cinda nixing its planned investment could mean a rocky road ahead for Ant’s restructuring plan, said Andy Mok, a senior research fellow at Beijing-based think tank Center for China and Globalization (CCG).

“Cinda’s decision may signal less official support for the company,” he said. “And this may have a negative effect on private-sector investors as well.”

The director of a global credit rating agency who asked not to be named said Cinda’s pullout might suggest that the government wasn’t satisfied with its planned stake and wanted to exert more control over Chongqing Ant.

Asset-management companies rather than banks would be more suitable candidates for new investment because current regulations could have blocked Chongqing Ant from partnering with multiple financial institutions, the director said.

Brock Silvers, chief investment officer at Shanghai-based Kaiyuan Capital, warned that “in the current regulatory environment, especially given Ant’s recent travails, Chongqing Ant may have a hard time attracting private capital.”

Author: CISSY ZHOU, Nikkei

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