Cinda, China’s bad debt manager, backs out of Ant Unit’s capital raise

HONG KONG – China Cinda Asset Management Co., a state-owned financial institution, is pulling out of a major planned investment in the consumer finance arm of Jack Ma’s Ant Group Co., causing a setback to the overhaul of the lending business of the fintech giant.

Beijing-based Cinda, which is one of the country’s big four bad debt managers, said on Thursday its board had made the decision to step down “after further considerations and careful business negotiations” with the company. recently established Chongqing Ant Consumer Finance Co. He did not provide further details.

Ant, which is in the midst of restructuring, set up Chongqing Ant in June to house its consumer lending business and comply with financial regulations. Ant owns half of the Chongqing unit, with the rest held by six other companies. Nanyang Commercial Bank, a subsidiary of Cinda, is the second largest shareholder, with a 15% stake.

In December, Chongqing Ant said it expected to receive a $3.5 billion capital raise, including the equivalent of $943 million from Cinda.

This proposed share sale would have nearly quadrupled the company’s registered capital to 30 billion yuan, the equivalent of $4.7 billion. This would give Chongqing Ant a larger balance sheet to lend to individuals, paving the way for the company to take over the Ant Group’s existing consumer loan portfolios. Cinda’s planned additional investment – a 20% stake – would have brought its total stake in Chongqing Ant to 24%.

Shares of Hong Kong-listed Cinda fell 10% in Friday trading after the company announced it would no longer enter into the deal. The shares had surged at the end of December.

Sunny Optical Technology (Group) Co. and Jiangsu Yuyue Medical Equipment & Supply Co., two other Chongqing Ant shareholders who had also previously agreed to the capital increase, said Friday they would postpone their investments in light of the decision. from Cinda.

Cinda’s withdrawal from the December deal now means that Ant’s consumer finance arm will have to revise its capital-raising plans.

Chongqing Ant said Thursday that he fully respects Cinda’s decision. The company added that with guidance from regulators, it would hold discussions with investors, complete the capital increase proposal as soon as possible and effectively rectify the consumer credit business.

It’s a volatile time for China’s four major bad debt managers. The institutions were created in the late 1990s to support non-performing loans from public banks. Over the past two decades, however, these “bad banks” have aggressively expanded into other businesses through transactions and acquisitions, raising regulatory concerns.

Unchecked growth ran its course with the fall of Lai Xiaomin, the former chairman of China Huarong Asset Management Co., another of the four bad banks. In January 2021, Mr. Lai was sentenced to death after being found guilty of corruption and embezzlement. He was executed a few weeks later. In November, months after reporting huge losses, Huarong said it would receive a capital injection of $6.5 billion from public financial institutions.

Regulators have since tightened their grip on the four bad debt managers. Companies have been urged to return to their roots and focus on their core business of managing bad debts and distressed assets. The Central Commission for Discipline Inspection, the Communist Party’s anti-corruption watchdog, showed last January that the four had consolidated or delisted a total of 56 affiliates.

For Ant, the Chongqing unit will allow it to diversify its funding sources for loans to millions of Chinese citizens and subject its popular consumer loan products to full regulatory oversight. Ant has renamed some loan offers on its popular Alipay app, making it clear to users whether they are borrowing from outside lenders or from the company itself. It also fully integrates consumer credit data collected from these transactions into a government credit reporting system.

In less than six months, Chinese tech giant Ant went from planning a successful IPO to restructuring in response to central bank pressure. While the United States is also targeting big tech, here’s how China is advancing faster. Photo illustration: Sharon Shi

Write to Jing Yang at [email protected]

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