Breakingviews – Beijing puts Ant on the shorter leash

FILE PHOTO: Jack Ma, founder and CEO of China’s Alibaba Group, speaks in front of a picture of SoftBank’s human-like robot called “Pepper” during a press conference in Chiba, Japan on June 18, 2015. REUTERS / Yuya Shino / File Photo

HONG KONG (Reuters Breakingviews) – Ant Mania gets reality check from Beijing. Regulators invited founder Jack Ma days before the company’s record $ 34 billion initial public offering. Newly introduced rules would also treat technology brokers more like banks.

The Chinese authorities released a concise statement on Monday that the central bank and three financial regulators held a rare joint meeting with Ma and two executives from Ant. Details were not disclosed, but the gathering comes less than two weeks after Ma publicly blew up the oversight system.

The outspoken billionaire railed against the Basel Accords, a series of international regulations that oblige banks to hold a certain amount of capital that is obsolete for modern times. He also accused Chinese lenders of having a “pawnshop” mentality of using collateral in place of advanced credit ratings, and guardians ignorant of the difference between regulation and supervision.

Whether or not Ma has been reprimanded, he and Ant shareholders have bigger issues to consider. Draft rules for online micro-lenders, including leverage caps, were also released on Monday. For Ant, they could have far-reaching implications for the massive lending business that brings businesses and consumers together with lenders. For example, one proposal would require online businesses to raise at least 30% of the equity on their own balance sheets for certain loans.

The wording is frustratingly vague. At worst, it could turn Ant’s business model on its head, which allows the company to run huge amounts of loans – 1.7 trillion yuan ($ 254 billion) in consumer credit in June – without the capital constraints of a typical bank. Given the existing capital-to-leverage ratios, analysts at Bernstein estimate that if Ant were forced to subscribe 30% of the 2% loans it would have to triple the net assets of its microloan subsidiaries to about $ 16 billion.

That’s probably manageable when you consider that Ant is targeting a market cap in excess of $ 300 billion if the stocks are due to start trading on Thursday. Still, the latest moves are the clearest sign yet that, despite Ant’s desire to be a techfin company – putting technology before finance – Beijing is keeping a proper eye on the colossus of Ma.

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