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Bloomberg

Ant Turning From Windfall to Nightmare for Its Global Investors

(Bloomberg) — Two months ago, global investors including Warburg Pincus, Carlyle, Temasek and GIC were on the cusp of a massive windfall from what would have been the world’s largest initial public offering.Now, returns on the hundreds of millions of dollars they invested with Ant Group Co. are in jeopardy. On Sunday, China ordered Ant to reexamine its fintech businesses — spanning from wealth management to consumer credit lending and insurance — and return to its roots as a payments service.While the central bank’s statement was short on specifics, it presents a serious threat to the growth and most lucrative operations of billionaire Jack Ma’s online finance empire. Regulators stopped short of asking directly for a breakup of the company, yet stressed it was important Ant “understand the necessity of overhauling its business” and told it to come up with a plan and timetable as soon as possible.Authorities also berated Ant for sub-par corporate governance, disdain toward regulatory requirements, and engaging in regulatory arbitrage. The central bank said Ant used its dominance to exclude rivals, hurting the interests of its hundreds of millions of consumers.Ant said in response that it will set up a special team to comply with regulators’ demands. It will maintain business operations for users, vowing not to increase prices for consumers and financial partners, while stepping up risk controls.The Hangzhou-based firm needs to set up a separate financial holding company to comply with rules and ensure it has sufficient capital, regulators added.Here are some of the scenarios from investors and analysts on what the restructuring could look like:MildOptimists say regulators are merely re-asserting their right to oversee the country’s financial sector, sending a warning to the internet companies without intentions of drastic change.Beijing could be trying to make an example out of Ma’s Ant, the largest among a raft of new but pervasive fintech platforms. Past crackdowns of this nature have dealt short-term blows to companies, leaving them mostly unscathed. Social media giant Tencent Holdings Ltd., for instance, became a prominent target of a campaign to combat gaming addiction among children in 2018. While its shares took a hit, they eventually recovered to all-time highs.Ant’s affiliate, Alibaba Group Holding Ltd., similarly regained the confidence of investors after short-run selloffs following accusations by authorities on everything from unfairly squeezing merchants to turning a blind eye to fakes on its e-commerce platform.“I don’t think regulators are thinking of breaking up Ant, as no fintech company in China has a monopoly status,” said Zhang Kai, an analyst at market research firm Analysys Ltd. “The act is not just targeting Ant but also sending out a warning to other Chinese fintech companies.”Some see it as an opportunity for Ant….