China Consumer Loan King Ant Financial Hit by Debt Sale Drop

(Bloomberg) -- Billionaire Jack Ma's Ant Financial, the world's biggest fintech firm, may have a problem.

Financing from an obscure part of the debt market that the company has relied heavily on for its key consumer lending business is drying up. It's sold only 22.8 billion yuan ($3.6 billion) of asset-backed securities tied to consumer lending in the first quarter, down 74 percent from the previous three months, according to data compiled by Bloomberg and China Securitization Analytics.

China's tech giants led by Ant Financial have been ramping up consumer lending to meet surging demand from cash-strapped millennials buying everything from iPhones to hairdryers on online shopping platforms. The firms then package the lending into ABS, complex financial products that they sell on to investors. The micro-lending driving such debt sales, though, has increasingly been in the crosshairs of regulators as the industry is criticized for sometimes high interest rates and underhanded lending practices.

Ant's ABS issuance began cooling in December when authorities stepped up requirements for deleveraging. Authorities also required some lenders to consolidate securitized products on their books, instead of keeping them off their balance sheets. That could push up debt ratios at micro-lenders, making it harder to meet local restrictions on such figures.

Profit Risks

“Ant Financial's golden days of taking advantage of easy money from the debt market probably won't return anytime soon,” said Yang Junmin, an analyst at internet finance research firm Shanghai Yingxun Technology Co. in Shanghai. “The declining issuance may limit loan growth and even hurt the company's profits.”

Ant Financial declined to comment.

The local regulation Ant must heed is in the southwestern city of Chongqing, where the two entities it uses to issue ABS are based. In general, micro-lender's debt shouldn't exceed approximately 230 percent of net capital.

While details on Ant's debt-to-net-capital ratio aren't publicly available, its sales of ABS surged to a record last year, potentially pressuring debt ratios under the new accounting rules.

The company issued a record 258.8 billion yuan of consumer loan ABS last year, almost three times all similar issuance in the U.S. in the period, according to data compiled by Bloomberg and China Securitization Analytics.

Lending Giant

As the pace of such fundraising slows, there are signs it will remain sluggish. China's two exchanges have granted Ant Financial four quotas for ABS sales this year, each with a size of 8 billion yuan. In contrast, most of the quotas granted last year were for 30 billion yuan.

That's all adding to risks of a slowdown for the firm's lending business. Tech companies can't take deposits like banks, so the ABS, which are generally sold to institutional investors, give such lenders a way to raise funds.

In addition to ABS, borrowings in the interbank market are another way to fund consumer loan businesses, although the costs can be slightly higher, depending on interbank rate fluctuations.

Read more about the surge in Ant Financial's consumer lending

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

--With assistance from Yang Yang

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net, Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net.

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Robert Fenner at rfenner@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Judy Chen, Lulu Yilun Chen