China told Ant Group Co to become a financial holding company that will be regulated more like a bank, directing an overhaul that was set in motion when the fintech giant’s record initial public offering was abruptly halted last year.
At a meeting on Monday, the central bank ordered Ant to rectify its business in five areas, including eliminating unfair competition in its payments business, managing liquidity risks in its major fund products, ending a monopoly on information and improving corporate governance, according to a government statement. 
It also told the firm to cut the outstanding value of its money-market fund Yu’ebao.
The overhaul creates a definitive supervision framework for the biggest player in the country’s sprawling fintech sector. The government shocked markets in November by suspending billionaire Jack Ma’s planned IPO of Ant, citing a changed regulatory environment, days before its trading debut.
Several government agencies, including the People’s Bank of China, the banking and securities regulators met with Ant to dictate the overhaul.
The recast is a step toward meeting the demands of China’s watchdogs, who have pledged this year to curb the “reckless” push of technology firms into finance and are examining monopolies online.
Regulators also this month imposed a record $2.8bn antitrust fine on Ant’s affiliate Alibaba Group Holding Ltd, lifting a cloud of uncertainty hanging over billionaire Ma’s e-commerce empire. Ma emerged in public in January for the first time since China began clamping down on his businesses, ending several months of speculation over his whereabouts.
Still, there’s little clarity over how investors will now judge the firm, which fetched a $280 billion pre-money valuation before its $34.5bn IPO was halted.
“The darkest hour for Alibaba has passed, but I wouldn’t say so for Ant Group,” said Dong Ximiao, a chief researcher at Zhongguancun Internet Finance Institute. “The latest announcement clarified the framework for Ant’s restructuring, but the tone is still harsh and some of the requirements are tougher than expected. I don’t think the overhang is removed for Ant investors at this stage.”
The measures are likely to drastically reduce Ant’s valuation in an IPO, according to estimates from Bloomberg Intelligence.
It may be valued at less than 700bn yuan ($108bn) under previous draft proposals, which could reduce the value of Ant’s Alipay service by half, according to senior analyst Francis Chan.
While the measures subject Ant to tighter regulations, it could leave the company’s overall structure intact. Ant generates synergy by directing traffic from its payments service Alipay – which has a billion users – to other financial services including wealth management, consumer lending and even on-demand neighbourhood services and delivery.
Authorities now require Ant to cut off the improper linking of its payments with other financial products including its Jiebei and Huabei lending services.
In a statement, Ant said it could fold those lending units into the consumer finance arm and that it would apply for a company license for personal credit reporting and improve consumer data protection.
Ant will plan its growth “within the national strategic context,” and make sure that it shoulders more social responsibility.
China proposed measures to curb market concentration in its online payment market in January. The central bank said in draft rules that any non-bank payment company with half of the market in online transactions or two entities with a combined two-thirds share could be subject to antitrust probes.
If a monopoly is confirmed, the central bank can suggest that cabinet impose restrictive measures including breaking up the entity by its business type. Firms already with payment licenses would have a one-year grace period to comply with the new rules, the People’s Bank of China said.
Ubiquitous in China, Ant and Tencent have transformed how consumers shop through their mobile apps that are used by a combined 1bn people.
Mobile payments are only part of what contribute to online transactions, but they have become the most important platform in China. Alipay, the app operated by Ant, held 57% of the mobile payments market as of the second quarter last year, according to Internet consultant iResearch. Tencent had a 39% share.
Room for growth in online payments is limited after years of a head-to-head rivalry between Ant and Tencent’s Wechat Pay. Total transactions were 59.8tn yuan as of June 30, up 8.8% from a year earlier, according to iResearch. 
That’s sharply down from increases of 23% and 65% during the same period in 2019 and 2018, respectively.
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