Tencent faces broad China clampdown on Fintech, Offers, Telecom Information, ET Telecom

Tencent Holdings Ltd. Pony Ma has been notified.

Asia’s largest conglomerate was censored by China’s antitrust authorities on Friday as Beijing expanded a crackdown that began with Jack Ma’s online empire.

The Token Fine is just the beginning. China’s top financial regulators see Tencent as the next target for increased oversight after cracking down on Jack Ma’s Ant Group Co., According to People with Awareness. Like Ant, Tencent will likely have to set up a financial holding company that will encompass their banking, insurance and payment services, one of the respondents said, trying to be anonymous as the discussions are private.

The two companies will set a precedent for other fintech companies when it comes to complying with more stringent regulations, people added.

Such a move would mark a major escalation in China’s campaign to curb the influence of its technology moguls days after Prime Minister Li Keqiang pledged at the National People’s Congress to expand oversight of financial technology, eradicate monopolies and prevent the “unregulated” expansion of the capital.

“We will continue to adapt to changes in the regulatory environment that we consider beneficial to the industry and seek to ensure full compliance,” Tencent said in a statement sent via email.

The Chinese Banking and Insurance Commission did not immediately respond to a request for comment.

A set of rules unveiled over the past six months target the reigns built by China’s most successful online entrepreneurs. The first blows fell on Jack Ma when Ant’s $ 35 billion IPO was torpedoed at the last minute, followed by an antitrust investigation by Alibaba Group Holding Ltd.

Tencent has already seen collateral damage from the new regulations, despite investors shaking it off and pumping the stock despite Alibaba being penalized. The 26% increase over six months contrasts with a 15% plunge for Jack Ma’s e-commerce giant, which owns a third of Ant. Tencent’s shares hit a record $ 950 billion on Jan. 25.

The share even fell 4.5% in Hong Kong on Friday. The shares of Tencent investor Naspers and his unit Prosus also fell. The spreads for Tencent’s 2.39% dollar bond due in 2030 have widened by up to 6 basis points, according to traders.

Along with Ant, the proposed rules to break market concentration in digital payments and curb online consumer credit will hurt the prospects for Tencent’s WeChat Pay and its broader fintech business.

A dictate to fold these businesses into a holding company that could be regulated more like a bank would potentially further limit its ability to lend more and expand as quickly as it has in recent years.

Tencent’s fintech business had sales of approximately 84 billion yuan ($ 13 billion) in 2019, which is 22% of total sales. This makes Tencent the biggest revenue driver after online entertainment. That’s roughly 70% of Ant’s annual sales.

Rating hit

Following the suspension of Ant’s initial public offering, the central bank ordered the Hangzhou-based company to transform itself into a financial holding company, subject to capital restrictions, the need for new licenses and property reviews. The revision could lower the financial juggernaut’s valuation by about 60% from the $ 280 billion it was tied to last year, Bloomberg intelligence analyst Francis Chan estimated.

Tencent meets the parameters for such treatment, including the threshold for assets and companies that span at least two financial sectors.

Outside of financial services, Tencent and his colleagues are facing additional antitrust measures.

On Friday, regulators fined Tencent, search leader Baidu Inc., hail giant Didi Chuxing, and a group of an additional 500,000 yuan – the maximum under the current rules – for previous acquisitions and investments, tightening the process.

Alibaba is also under investigation and the guard dog is considering a record fine of more than $ 975 million, which Qualcomm Inc. paid in 2015, Dow Jones reported.

Premier Li tied his terms last week with an assurance that Beijing would support “platform company innovation and development” provided that they comply with the country’s laws.

Recent measures to contain fintech companies were not aimed at any one company, a senior regulator said, but instead focused on creating a stable environment for private companies to grow.

However, Beijing has a penchant for citing examples of its largest companies in order to force others to adapt to changing priorities. All three of the country’s financial watchdogs have made it their primary goal this year to curb the “ruthless” pressure from technology companies on funding. And there’s little doubt that the Pony Ma conglomerate built the finances.

The WeChat super app has over a billion consumers who use it for everything from chatting with friends to booking taxis to buying groceries. According to iResearch, WeChat Pay accounts for nearly 40% of the mobile payments market in the country, second only to Alipay.

Tencent with three other big tech companies – Alibaba, JD.com Inc. and Baidu – together control over 40 financial licenses through acquisitions or investments, according to the Xinhua News Agency, which 01caijing cited.

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