SINGAPORE / HONG KONG / BEIJING (Reuters) – They say that talking is cheap. Tell Jack Ma.
China’s brightest star is only a few days away to see his Ant Group listing on the stock market with a record $ 37 billion (£ 28.40 billion).
deal, as he chooses to launch a massive public attack on the country̵7;s financial and banking watchdogs.
Billionaire Ma said during a summit in Shanghai on October 24 attended by talented and accomplished people in China’s financial, regulatory and political bases, the management system held back. Discourage innovation and must be reformed to drive growth.
Chinese banks, he said, operate with a “pawnshop” mentality.
According to interviews with government officials, corporate executives and investors, it was this speech that started a chain of events that led to the listing of Ant, the fintech giant that Ma became. create. They all asked for anonymity to reveal confidential details.
Chinese Communist Party officials and officials have begun to rein in Ma’s vast financial empire, culminating in the suspension of its IPO on Tuesday, two days before its launch, the sources said. schools are expected in Shanghai and Hong Kong, the sources said.
Although Ma may not be aware of the impact of his words, those close to him were confused to find out in advance about the tone of the speech he intended to give, according to two sources close to him. close to Ma.
They asked the 56-year-old to soften his remarks when some of China’s top financial managers would attend, but he refused to budge, believing he could say what he wanted, the sources said.
‘Jack is Jack. He just wanted to speak his mind, ”said one resident.
That is an expensive miscalculation.
Two sources told Reuters that some senior financial officials were furious at Ma’s criticism, with one saying the speech as a “punch in the face”.
State regulators began to consolidate reports including one on how Ant has used digital financial products like Huabei, a virtual credit card service, to encourage the poor and the bar. debt accumulation year, according to two people.
Sources said that the State Council office compiled a report on public sentiments about Ma’s speech and submitted it to senior leaders including President Xi Jinping.
Some reports indicated negative public sentiment towards Ma and his remarks, residents said.
China’s top leaders then became more involved and demanded a thorough investigation into the company’s business practices, which ultimately led to the suspension of the world’s largest IPO, three of the sources said.
The People’s Bank of China (PBOC), China Banking and Insurance Administration, China Securities Regulatory Commission, State Foreign Exchange Administration and the State Council Information Office did not pay Comment immediately requested for comment from Reuters.
Reuters could not immediately contact Ma for comment and e-commerce group Alibaba BABA.N9988.HKMa, the company that handled media inquiries about Ma, did not respond to a request for comment on the story from the main founder.
The chances of the rebellion getting back on track in the short term are slim, according to six of them, as managers want to tighten oversight of the company. The two said there will be no listings for at least the next few months.
That was a staggering reversal for Ma, who added at least $ 27 billion to his net worth since the IPO.
Over the years, most regulators have left billionaires for their own devices, in part because of their close ties with some senior government officials, according to five sources, but also. because of his national pride in his success.
Ma, a former English teacher, is one of China’s internet pioneers, building an e-commerce empire with Alibaba and a fintech giant with Ant.
When the PBOC tried to regulate Ant’s payments and wealth management business about five years ago, Ma bypassed the central bank after failing to reach consensus with regulators and lobbying the government. center. The PBOC subsequently dropped those regulatory plans.
“Jack Ma hasn’t skipped the usual process of communicating with relevant regulators about Ant’s payments and wealth management business,” an Ant spokesperson said in an emailed response. with Reuters.
But with his October 24 speech, Ma misjudged Beijing’s changing priorities, according to a senior management source, believing he could challenge the financial base but still retain support. households of central leadership.
The bigger picture is that one of the government’s main goals this year is to strengthen the country’s financial sector and tighten regulatory oversight to prevent systemic risks in an economy affected by pandemic, this person said.
Even before Ma’s speech, Chinese regulators have gradually stepped up the oversight of Ant, the company that has largely thrived as a tech platform that doesn’t have costly banking regulations despite many financial services.
The scrutiny is particularly intensified on the company’s rapidly growing online consumer lending business, a cash cow, that supplies demand from retail and small business consumers and transfers It gives about 100 banks to underwrite the issue.
MANAGERS IMPLEMENTING THE MOVEMENT
According to half of the people interviewed, the Shanghai speech was the cause of a massive escalation, prompting senior political officials to demand regulatory agencies, including the central bank and China’s leading banking regulator, scrutinizing Ant’s business activities.
Watchdogs, who have for many years wanted to rein in Ma’s fintech empire, have gone fast after receiving written instructions from officials, including Deputy Prime Minister Liu He, a business advisor. President Xi’s trustworthy economy, the two said.
The State Council Information Office did not immediately respond to a Reuters request for comment from Liu.
As part of this dynamic, management officials rushed to release a consultation document on Monday this week to tighten the rules, said a person with first-hand knowledge. The country’s micro-lending business, this directly affects Ant.
The draft requires microfinance institutions to finance at least 30% of any loan they finance in conjunction with banks. The company’s IPO prospectus shows that only 2% of all the loans Ant has facilitated as of the end of June are on the balance sheet.
Leading companies in the Chinese industry including Ant and Lufax Holding Ltd, an online asset management platform, knew about the draft details a few weeks before its public release, the two said.
Lufax, the company that raised $ 2.4 billion in an IPO in New York last month, informed investors that regulators were asking for online micro-lenders. Investment provides about 20% -30% of any loan they finance with banks, according to two investors participating in the screening.
Lufax declined to comment due to restrictions on quiet time after the IPO.
In contrast, Ant executives did not mention possible regulatory changes during the company’s two key calls to global investors during the roadshow last week, the two investors said. another private said.
An Ant spokesperson said the company was unaware of the details of the draft online micro-lending rules until they were announced on Monday.
HUBRIS AND PEOPLE
After the publication of the micro-loan consultation document, Ma and two of Ant’s top executives were convened to a rare joint meeting with four regulatory agencies.
They were told that the company, especially its consumer lending business, would face stricter scrutiny on matters including capital adequacy and leverage.
Regulators were surprised by the size and risk model of Ant’s lending division, details of which were disclosed in the IPO-related filings from the end of August. Huabei and short-term consumer loan provider Jiebei contributed nearly 40% of the group’s revenue in the first half of the year.
A day later, the Shanghai Stock Exchange said it had suspended Ant’s IPO, citing “a significant change” in the legal environment, prompting the company to freeze its double listing. Hong Kong.
The Chinese securities industry watchdog later said the recent regulatory changes could have “big impact” on Ant’s business structure and profit model. It said the suspension of the IPO is a responsible move for both investors and the market.
The suspension marks a relationship that has steadily worsened in recent years between Ma’s corporate empire and Chinese regulators, from the central bank to the market watchdog and the internet.
However, after the announcement, Ant issued a statement in which it pledged to “follow” the rules.
Gavekal Research analyst Andrew Batson wrote in a report this week: “There’s no other way than to do so. “Ma’s arrogance has now changed to humility.”
Reports by Keith Zhai in Singapore, Julie Zhu in Hong Kong and Leng Cheng in Beijing; Edited by Sumeet Chatterjee, Pravin Char and Carmel Crimmins