Ant mania is getting a reality check from Beijing. Days ahead of the company's record-setting $34 billion initial public offering, founder Jack Ma was hauled in by regulators for a chat. Newly unveiled rules also would treat technology middlemen more like banks.
Chinese authorities on Monday released a terse statement that the central bank and three financial regulators had held a rare joint meeting with Ma and two Ant executives. Details were not disclosed, but the assemblage comes less than two weeks after Ma publicly blasted the system of oversight.
The outspoken billionaire railed against the Basel Accords, a series of international regulations that require banks to hold a certain amount of capital, as outmoded for the modern era. He also accused Chinese lending institutions of having a "pawnshop" mentality of using collateral instead of advanced credit ratings and watchdogs of not knowing the difference between regulation and supervision.
Whether Ma was reprimanded or not, he and Ant shareholders have bigger problems to consider. Draft rules for online micro-lenders, including caps on leverage, were released on Monday, too. For Ant, they could have a far-reaching impact on its sizeable credit business, which matches companies and consumers with lenders. One proposal, for example, would require online companies to contribute at least 30% of the capital from their own balance sheets for certain loans.
The wording is frustratingly vague. In the worst case, it could upend Ant's business model, which allows the company to process huge amounts of credit – 1.7 trillion yuan ($254 billion) of consumer loans as of June – without any of the capital constraints of a typical bank. Under existing capital-to-leverage ratios, analysts at Bernstein estimate if Ant is forced to underwrite 30% of loans, up from 2%, it would have to triple net assets at its micro-lending subsidiaries, to some $16 billion.
That's probably manageable, given Ant's mooted market capitalisation of over $300 billion when the shares are due to start trading on Thursday. Even so, the latest measures are the clearest sign yet that despite Ant's desire to be a techfin company – putting technology ahead of finance – Beijing is appropriately eyeing Ma's colossus the other way around.