State firms to take big stake in Ant's credit-scoring JV: sources

Hong Kong

STATE-BACKED firms are set to take their first sizeable stake in a key Ant Group asset as part of the Chinese fintech giant's regulatory-driven revamp that was ordered after its botched November stock market debut, three people told Reuters.

The partners plan to establish a personal credit-scoring firm to handle Ant's treasure trove of data on over one billion consumers, said the people, adding that its ownership structure could help revive Ant's blockbuster initial public offering (IPO) which regulators put a stop to with just two days to go.

The IPO drew regulators' attention to billionaire Jack Ma's Ant and e-commerce affiliate Alibaba Group Holding. The result was a restructuring order for Ant, a record US$2.75 billion fine for Alibaba for antitrust violations, and a near-three month disappearance of Mr Ma from public view.

Under the plan, Ant and Zhejiang Tourism Investment Group Co will each own 35 per cent of the venture, while other state-backed partners include Hangzhou Finance and Investment Group and Zhejiang Electronic Port, said one of the people.

The only non-state investor will be Transfar Group, parent of logistics and financial services firm Transfar Zhilian Co, said the people with knowledge of the matter, who declined to be identified as the information was private. Transfar's stake will total 7 per cent, said one of the people.

Reuters phone calls to Zhejiang Tourism seeking comment went unanswered. Ant and other shareholders did not respond to emailed requests for comment.

The People's Bank of China (PBOC) - China's central bank, which is overseeing Ant's restructuring - did not immediately respond to a faxed request for comment.

The plan would represent one of the most prominent outcomes of a government push for state-backed firms to exert more control and influence over fast-growing but previously lightly regulated new-economy businesses.

It follows the PBOC in April ordering Ant to become a more strictly regulated financial holding firm, break its "monopoly on information and strictly comply with the requirements of credit information business regulation". In June, Ant won operational approval for a consumer finance venture whose minority shareholders include state-owned firms.

The venture puts Ant's lucrative micro-lending businesses under tighter regulatory purview.

The proposed credit-scoring firm would bring Ant's main business-data operations under one unit, also making regulatory oversight easier.

Under the framework being discussed for the new joint venture, shareholders will invest about 500 million yuan (S$104.1 million) in the venture as registered capital, said one person. They aim to establish what would be China's third private credit-scoring firm as soon as October, two of the people said.

E-commerce and financial technology (fintech) firms such as Ant sit on a huge cache of consumer data that is the backbone of China's Internet where, in finance, companies' offerings are as varied as loans and investment products sold via smartphones.

Big platforms such as Ant, which began as Alibaba's payments arm, have for years been reluctant to share that data with credit-scoring firms run or backed by regulators.

The government responded with tighter rules for fintech firms that collect and use personal data in financial services.

In January, the central bank issued draft rules clarifying the scope of information and businesses included in credit-scoring regulation and urged credit-scoring firms to apply for licences and to not over-collect user data.

Ant, via super-app Alipay, collects data of over one billion users, many of whom are young, Internet-savvy people without credit cards or sufficient bank credit records, as well as 80 million merchants, according to analysts and its IPO prospectus.

It runs Zhima Credit, one of China's biggest private credit-scoring platforms, with proprietary algorithms to score people and small businesses based on their use of Ant-linked services.

The firm offers limited borrower information to about 100 banks, taking so-called technology service fees - typically 30 per cent to 40 per cent of interest on loans it facilitates, analysts estimated. REUTERS