SHANGHAI, March 29 — 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 (RM14.1 billion) of asset-backed securities tied to consumer lending in the first quarter, down 74 per cent from the previous three months, according to data compiled by Bloomberg and China Securitisation 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 criticised for sometimes high interest rates and underhanded lending practices.

Ant’s ABS issuance began cooling in December when authorities stepped up that crackdown by requiring lenders to consolidate securitised 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. The rule there says a micro-lender’s debt shouldn’t exceed approximately 230 per cent 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 US in the period, according to data compiled by Bloomberg and China Securitisation 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.

And Ant would have a lot to lose. Its consumer lending has reached at least 600 billion yuan, people familiar with the matter said this month.

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