Jack Ma debt giant grinds to halt as China curbs micro-loans

After selling billions of dollars of debt backed by consumer loans last year, Chinese billionaire Jack Ma’s Ant Financial is pausing such fundraising as the government steps up curbs on micro lending.

The company hasn’t sold any asset-backed securities since early December, according to data compiled by Bloomberg and China Securitization Analytics. That marks an abrupt shift after it issued a record 238 billion yuan (USD37 billion) in 2017 of such securities backed by consumer loans.

People familiar with the matter said this week that regulators have stopped approving sales of ABS backed by loans that aren’t specifically for shopping. Authorities also announced on Dec. 1 they were requiring micro lenders to consolidate ABS into their balance sheets.

“Without the new rules, Ant Financial’s consumer loans would balloon with no limit because it can move most loans off its balance sheet by packaging them into ABS,” said Shanghai-based Yang Junmin, an analyst at Internet finance research firm Shanghai Yingxun Technology Co. “Now they would be very cautious about selling new ABS. Ant Financial’s new consumer loans may have an obvious slowdown this year.”

China’s regulators are targeting the estimated 1 trillion yuan online cash micro-lending industry that has drawn criticism for sometimes high interest rates and underhand lending practices. An extended fundraising halt could limit the ability of Ant Financial – which is controlled by Alibaba Group Holding Ltd.’s founder Ma – to lend to consumers buying everything from iPhones to hairdryers on China’s burgeoning online shopping platforms.

The securitized products have provided capital that can be lent out by Ant and the financing units of other Internet giants that can’t take deposits, raising red flags for some analysts who said there needs to be more transparency about how the ABS are created.

Ant Financial said in an emailed statement that the company had stopped issuing ABS recently as interest rates in the interbank market had gone up significantly, and didn’t respond to questions concerning any regulatory changes.

Some consumer loans allow borrowers to forgo specifying what the funds will be used for. The National Association of Financial Market Institutional Investors and the Shanghai and Shenzhen Stock Exchange have halted approval of ABS backed by such loans, the people familiar said, asking not to be identified because the details are private. The people said they didn’t know when the sales would be revived.

NAFMII declined to immediately comment. Shenzhen Exchange asked for emailed questions when reached by phone, and there was no immediate reply to the emailed queries. Calls to Shanghai Exchange went unanswered, and there was also no immediate reply to emailed and faxed questions.

“With the new restrictions published late last year, China’s unsecured cash loan market will probably shrink quite a lot this year,” said  Jerome Cheng, a senior vice president in Hong Kong at Moody’s Investors Service. “The ABS backed by this type of assets will shrink as well.”

Ant Financial is formally known as Zhejiang Ant Small & Micro Financial Services Group. Bloomberg

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