Analysis | What does the change of ANT GROUP to having no actual controlling shareholder mean?

_Source: _ Lianhe Zaobao

Multiple Chinese media outlets reported on December 30, 2023 that the People's Bank of China (PBOC) has approved a significant change in the licensing information of non-bank payment institutions on its official website. The change involves ANT GROUP becoming a company without an actual controlling shareholder.

This news has attracted attention because it signifies that the company, founded in 2004, is officially "de-Ma Yun-ized" and removes a major obstacle to ANT GROUP's listing.

In fact, the change of ANT GROUP to a company without an actual controlling shareholder is a result of a equity restructuring carried out by its parent company, ANT GROUP, at the beginning of 2023.

At the beginning of 2023, ANT GROUP announced an adjustment to its voting rights structure, with Alibaba founder Jack Ma's voting rights decreasing from 53% to 6.2%. Since then, ANT GROUP no longer has a single or joint controlling shareholder.

One year later, the PBOC approved the change of ANT GROUP (China), which is 100% owned by ANT GROUP, to a company without an actual controlling shareholder. This means that the equity restructuring carried out by ANT GROUP a year ago has been recognized by the PBOC.

Chinese media reports also stated that China Taiping Insurance and listed company Hengsheng Electronics, both associated with ANT GROUP, announced on December 29, 2023 that they have also changed to companies without an actual controlling shareholder.

No Actual Controlling Shareholder?

According to the "Management Measures for the Acquisition of Listed Companies" in China, no actual controlling shareholder means that the equity structure of a listed company is dispersed, with no controlling shareholder holding more than 50% of the shares. There is also no situation where a single director or senior executive can exercise more than 30% of the voting rights or control significant financial and operational decisions of the company.

Since ANT GROUP has not yet been listed, having no actual controlling shareholder means that no shareholder holds more than 30% of the shares.

The structure of having no actual controlling shareholder is actually quite common. According to Jiemian News, among the 42 A-share listed banks in China, only eight have actual controlling shareholders, while the remaining 34 are in a state of having no actual controlling shareholder. Manufacturing companies such as Gree also have a structure of having no actual controlling shareholder.

Securities Times quoted industry insiders as analyzing that a relatively dispersed voting rights structure is a more modern corporate governance model. The dispersion of power can achieve a good balance and prevent a single dominant shareholder.

The dispersion of power and balance are also the keywords for the reforms that ANT GROUP has undertaken since its IPO was suspended in 2020.

In 2020, Chinese authorities halted ANT GROUP's $38 billion IPO. In November of the same year, financial regulatory authorities urged ANT GROUP to carry out reforms and conducted a rectification campaign to prevent the disorderly expansion of capital in the internet sector. Afterwards, ANT GROUP underwent a self-revolution, focusing on streamlining its business, opening up resources, strengthening regulation, and controlling risks. Specific actions included shutting down the mutual aid platform "Xianghubao" that did not comply with regulations, establishing ANT GROUP Consumer Finance to take over online lending businesses such as Huabei and Jiebei, separating personnel and data from Alibaba Group, and introducing state-owned assets.

The biggest move came in January 2023 when founder Jack Ma stepped down from his controlling position.

In July of the same year, the central bank announced the completion of rectifying the prominent issues of ANT GROUP and imposed a fine of 7.1 billion yuan (RMB, the same below) (1.323 billion SGD). Investors saw this as a symbol of the conclusion of rectification and began to anticipate the resumption of ANT GROUP's listing. The central bank's approval of ANT GROUP's status as having no actual controller is considered another crucial step before listing.

A necessary step before listing

According to Caixin, although ANT GROUP had previously announced its equity adjustment in January last year, as a third-party payment company subject to central bank regulation, ANT GROUP needed to apply for approval and make another announcement after the adjustment of its major shareholder voting rights structure.

The approval also signals that the adjustments made by ANT GROUP have been smoothly implemented and incorporated into the daily supervision of the financial system.

Previously, the main obstacles to ANT GROUP's listing were financial security risks and regulation. Analysts believe that this obstacle has now been largely eliminated, and ANT GROUP's listing will be put back on the agenda. Moreover, under the current structure without an actual controller, the company's decision-making on major issues will rely more on the company's management and upper-level regulatory authorities.

However, ANT GROUP still cannot meet one listing requirement in the short term, which is that there has been no change in the actual controller within three years. If ANT GROUP wants to list on the A-share market, it may need to wait for another three years. If it chooses to list on the Sci-Tech Innovation Board or the Hong Kong stock market, it will need to wait for two years and one year, respectively.

"Nationalization" of electronic payment infrastructure

As soon as the news of the central bank's approval came out, market analysts speculated that the absence of an actual controller represents "state takeover," and some netizens brought up Jack Ma's previous statement: "As long as the country needs it, ANT GROUP will be handed over to the country at any time," calling it a prophecy fulfilled by "Father Ma."

In fact, during the process of ANT GROUP's rectification, state-owned assets were introduced. A week before ANT GROUP announced Jack Ma's resignation from his controlling position, ANT GROUP Consumer Finance, which took over Huabei and Jiebei, announced a 10.5 billion RMB capital increase plan, with Hangzhou State-owned Enterprise Jintou Digital Technology Group becoming the second-largest shareholder with a 10% stake. In October 2023, ANT GROUP Consumer Finance increased its capital again, and the disclosed shareholder list included Chongqing Yufuhua Mao State-owned Assets Operation Co., Ltd., holding a 4.041% stake. However, the participation of state-owned assets does not mean that it becomes a state-owned enterprise. What brings ANT GROUP closer to regulation is the nature of its national-level payment tool.

Public information shows that ANT GROUP opens up payment technology to merchant institutions and provides acquiring services, forming a long-term and mature business model. Currently, it serves 80 million merchants and 1 billion consumers.

Such coverage determines that ANT GROUP is like water and electricity in the Internet world, not controlled by a single shareholder or a single private enterprise. It emphasizes the attribute of public service rather than making money for shareholder interests like ordinary companies.

Currently, the scale of third-party payment transactions in China is still increasing year by year. According to data from iResearch Consulting, it will reach RMB 561.9 trillion in 2023, a year-on-year growth of 14.5%. As the largest third-party payment platform in China, the changes in its governance structure will also bring enlightenment and demonstration effects to the industry.

Several financial bloggers have commented that WeChat Pay, another payment platform and a major payment tool in China, will also be included in regulation in the end, just like the regulation of all banks in the era of cash and bank cards.

After the Central Financial Work Conference identified "preventing and defusing financial risks, especially preventing the occurrence of systemic financial risks" as the fundamental task of financial work, the authorities also issued the "Regulations on the Supervision and Administration of Non-bank Payment Institutions", elevating the regulatory practice for non-bank payment institutions to administrative regulations and strengthening comprehensive supervision of payment institutions.

Currently, electronic payment, as part of the network "infrastructure", is related to the wallets of 1 billion users, so regulation is necessary. Whether ANT GROUP goes public in the future or not, it is destined to establish a closer connection with financial regulation, which is also the change that other payment platforms will experience. In the environment of strict regulation in China, it is difficult to clearly distinguish these "Internet infrastructure" companies as traditional state-owned or private enterprises.