By Julie Zhu
HONG KONG (Reuters) - China's Ant Group is in talks with other shareholders in its new consumer finance unit to bolster the firm's capital as the fintech giant prepares to fold in its lucrative micro-lending businesses, people familiar with the matter said.
It would need additional capital of 30 billion yuan ($4.6 billion) to meet regulatory requirements, said one of the people who has direct knowledge of the plans.
Ant plans to bring most of its micro-lending businesses into the unit - equivalent to roughly 1 trillion yuan ($155 billion) in outstanding loans - a move which will allow it to maintain operations nationwide and expand more easily, said two sources.
The plans reflect intense regulatory pressure on Ant to rein in some of its operations and subject them to rules and capital requirements similar to those for banks. That pressure scuppered Ant's $37 billion IPO last year and has seen it formulate plans to shift to a financial holding company structure.
Ant has two lucrative micro-lending businesses: Huabei, which operates like a virtual credit card, and Jiebei, a short-term consumer loan provider. Both based in the southwestern city of Chongqing, they form the bulk of its credit business which accounted for close to 40% of Ant's revenue in the first half of 2020.
But under new draft rules published by China's central bank in November, Huabei and Jiebei would have to limit their operations to Chongqing unless they obtain new national licences - a potentially lengthy and uncertain process.
That would not be a problem if the micro-lending businesses were part of the consumer finance arm.
Another major benefit of shifting the businesses to the consumer finance unit is that consumer finance firms can lend up to 10 times their registered capital while online micro-loan firms are only allowed leverage ratios of 2-3 times.
The new consumer finance firm, called Chongqing Ant Consumer Finance Co Ltd, was set up in August 2020 but still has not gained its business licence, three sources said.
"Regulators won't easily greenlight the launch of the business before it fully complies with the capital adequacy rules," said one of the people.
The sources were not authorised to speak on the matter and declined to be identified.
Ant, an Alibaba Group Holding affiliate, declined to comment. The China Banking and Insurance Regulatory Commission did not immediately respond to a request for comment.
Micro-lending - loans for small purchases such as smartphones, cameras and white goods - is hugely popular in China.
Ant and other tech platforms such as Tencent-backed WeBank and JD.com Inc have become powerful third-party intermediaries who draw in borrowers, take as much as a third of lending profit margins while the banks they partner with passively supply the credit.
Ant owns 50% of the consumer finance unit, which it plans to develop into China's biggest consumer lending player.
Hong Kong-based Nanyang Commercial Bank holds a 15% stake while Taiwan's Cathay United Bank holds 10%. Other co-founders include battery maker CATL and Alibaba-backed intelligent transport services firm China TransInfo Technology.
If the other shareholders are reluctant to provide additional capital, Ant plans to bring new investors, two of the people said.
Several shareholders want more clarity on the consumer finance unit's listing prospects, they added.
Shareholders are also hoping their stakes in the unit will be converted into shares in Ant's financial holding company, which is likely to go public, the people said.
Most of the other shareholders did not respond to requests for comment. CATL referred queries to Ant.
($1 = 6.4686 Chinese yuan)
(Reporting by Julie Zhu in Hong Kong and Cheng Leng in Beijing; Editing by Sumeet Chatterjee and Edwina Gibbs)