How complex is Jack Ma’s Internet finance empire?

Zhejiang Ant Financial Services Group Co., Ltd. (hereinafter referred to as "Ant Financial") is the most eye-catching financial sector under Jack Ma, chairman of the Alibaba Group. But what is not well known is that Hang Seng Electronics (600570.SH), of which Jack Ma is the actual controller, has also become an important platform for him to seize the Internet finance.

There are not only close related transactions between Ant Financial and Alibaba Group, but also frequent related transactions between Hang Seng Electronics and Alibaba Group. There are also many related transactions between Ant Financial and Hang Seng Electronics, both of which are actually controlled by Jack Ma.

Ant Financial owns multiple financial licenses and multiple physical companies, including third-party payment ( Alipay ), micro loans (Ant Microloan), funds (Tianhong Fund), banks (Zhejiang MyBank), online financial management (Zhaocaibao), insurance (ZhongAn Insurance), credit reporting, and guarantees. It is a typical example of a domestic Internet financial company with complex business and related transactions.

Hang Seng Bank also owns fund sales (Shumi Fund), financial data supplier (Hang Seng Juyuan), Internet finance (Santan Finance), P2P system provider (Rongdu Technology), etc., and is accelerating the progress of acquisitions and mergers in the field of Internet finance.

Although Alibaba Group and Ant Financial signed a non-entry agreement before the listing to clarify the relationship between the two, Ant Financial and Alibaba not only have close business dealings, but also have close equity relations with the group's founders such as Jack Ma.

How to integrate the complex businesses of its many subsidiaries and clarify ongoing related transactions will become challenges that Jack Ma's Internet finance sector must face in the future.

Hang Seng Electronics is not short of money

In recent years, Hang Seng Bank has invested and acquired shares everywhere. Its abundant cash flow has made it an important platform for Jack Ma to develop his business in the field of Internet finance.

In 2014, Zhejiang Rongxin Network Technology Co., Ltd. (Jack Ma holds 99.1365% of the shares) acquired 100% of the shares of Hangzhou Hang Seng Electronics Group Co., Ltd. (hereinafter referred to as "Hang Seng Group"), the parent company of Hang Seng Electronics, thereby indirectly holding 20.62% of the shares of Hang Seng Electronics.

The equity structure of Hang Seng Electronics has changed from joint control by multiple natural persons to single control. Jack Ma has become the actual controller of Hang Seng Electronics, marking another important step forward in its layout in the field of Internet finance.

According to the annual report, in 2014, Hang Seng Electronics achieved revenue of 1.422 billion yuan, a year-on-year increase of 17%, mainly due to the rapid development of the company's Internet finance, banking, and capital market business lines. In 2014, Hang Seng Electronics' net profit attributable to shareholders of listed companies was 360 million yuan, a year-on-year increase of 11.51%.

In addition, in 2014, Hang Seng Electronics' net operating cash flow reached 613 million, a year-on-year increase of 54.18%, several times the profit growth rate. It is worth noting that in 2014, Hang Seng Electronics' Internet business revenue increased by 124% year-on-year.

On April 14, Rongdu Technology, which specializes in customized P2P online loan systems, announced in Hangzhou that it had received a strategic investment of more than 66 million yuan from Hengsheng Electronics and its affiliated legal person Ningbo Yunhan Investment Management Partnership (hereinafter referred to as "Yunhan Investment"). Hengsheng Electronics and Yunhan Investment have acquired a total of 46.9% of Rongdu Technology's shares.

On April 14, Peng Zhenggang, chairman of Hang Seng Electronics, told a reporter from 21st Century Business Herald that the P2P industry will undergo major changes in the next two years. More listed companies and financial institutions will enter the P2P industry, which will bring opportunities to P2P service companies. "Hang Seng Electronics and Rongdu Technology will cooperate in various aspects such as market and technology. In the future, there will be many upgraded products to provide services for the P2P industry."

In addition to Rongdu Technology, Hang Seng Bank also invested in Zhengtong Co., Ltd. to develop Internet securities business; and acquired shares in Shenzhen Pioneer Technology Co., Ltd. to strengthen its futures product line; at the same time, it reorganized its subsidiaries to achieve investment platform integration and accelerate the development of Internet finance.

The synergy between Hang Seng and Alibaba

After joining hands with Alibaba, Hang Seng Electronics began to show positive synergy effects. For example, Shanghai Hang Seng Juyuan Data Services Co., Ltd. (hereinafter referred to as "Hang Seng Juyuan") and Shumi Fund Network, both of which achieved great growth in their businesses last year.

According to the Hang Seng Electronics Annual Report, by the end of 2014, Hang Seng Juyuan's two major product lines, database and terminal product lines, had grown rapidly. The market coverage rate increased by 13% year-on-year, especially in the fund industry, which reached 24%, and the insurance industry, which reached 33%.

In 2014, the number of fund accounts opened on Shumi Fund Network increased by 744.51% over the same period in 2013, the number of trading users increased by 1067.53%, the fund trading volume increased by 885.08%, and the fund sales stock increased by 372.85%.

Judging from the existing cooperation cases, the collaborative idea of ​​Hang Seng and Alibaba is that Ant Financial, together with Hang Seng Electronics (and Yunhan Investment held by the core management of Hang Seng Electronics), plus third-party companies that can generate business synergy effects, will cooperate at the equity and business levels and utilize the complementary advantages of all parties to jointly build a huge "Internet financial empire."

It has been just over a month since Jack Ma officially took over Hang Seng, and two major collaboration moves by the two parties have already taken place.

On November 21, 2014, Hang Seng Electronics announced that it would jointly increase the capital of Hang Seng Juyuan, a holding subsidiary of Hang Seng Electronics, with China Business Network, Ant Financial, and Yunhan Investment, and the capital increase is expected to be about 390 million yuan. After the capital increase, Hang Seng Electronics will still be the controlling shareholder of Hang Seng Juyuan, holding about 51% of the shares. China Business Network is expected to hold 29.9% of Hang Seng Juyuan, and Ant Financial will hold 19.1%.

Combining the content and communication advantages of China Business Network and the data advantages of Ant Financial, Hang Seng Juyuan may be benchmarked as the Chinese version of "Bloomberg", thereby opening up the entire asset management industry chain from back-end transactions and risk control to front-end data consulting.

On November 10, 2014, Hang Seng Electronics announced that it plans to jointly establish "Zhejiang Santan Financial Information Service Co., Ltd." with China Investment and Financing Guarantee Co., Ltd. (hereinafter referred to as "China Investment and Financing Guarantee"), Ant Financial, Yunhan Investment, and Beijing Yingfeng Times Investment Management Center. Among them, China Investment and Financing Guarantee holds 31% of the shares, Ant Financial holds 25%, and Hang Seng Electronics and Yunhan Investment hold a total of 36.25% of the shares.

Judging from the equity structure of Hang Seng Juyuan and Santan Financial, Hang Seng Electronics (jointly with Yunhan Investment) holds controlling rights in both of them.

Santan Finance focuses on Internet financial business. China Investment Corporation has rich experience in investment, financing and guarantee, Ant Financial has platform operation experience and traffic entrance, and Hang Seng Electronics can provide IT technology. Compared with Ant Financial's existing business, the financial asset trading platform is undoubtedly the key development direction of Santan Finance.

As Yu'ebao's scale bottleneck has become apparent, Santan Finance is expected to create the next Internet financial product with explosive influence.

In February 2015, Santan Financial issued the "Santan Puhui No. 1" product, with an expected annualized rate of return of 6.4% and a total scale of 50 million. It was sold out in 27 seconds after it was launched on Ant Financial's "Zhaocaibao" platform. According to the introduction of China Investment and Insurance's official website, as of mid-March 2015, Santan Financial had issued products with a total scale of 516.25 million on the Zhaocaibao platform.

Complex related-party transactions

Before going public, Jack Ma had divided Alibaba Group and Ant Financial into two independent entities. In the prospectus, the boundary between Alibaba Group and Ant Financial was clearly defined as follows: In the new agreement, Alibaba will share Ant Financial's pre-tax profits, no longer limited to Alipay. Accordingly, Alibaba Group's share of pre-tax profits was also adjusted from 49.9% of Alipay as stipulated in the previous version of the agreement to 37.5% of Ant Financial.

However, there is a close business relationship between Ant Financial's core product Alipay and Alibaba Group, which is highly related to Alibaba's existing business and is a continuous related-party transaction. According to Alibaba's prospectus, Alibaba paid 1.7 billion yuan to Alipay in fiscal 2013.

There are frequent and complex related transactions between Alibaba Group, Ant Financial and Hang Seng Electronics.

On April 10 this year, Hang Seng Electronics announced that Hang Seng Electronics and its holding subsidiaries intend to sign an "Agreement on Daily Operational Related Transactions" with Tianhong Fund. The agreement states that from January 1, 2015 to April 30, 2016, Tianhong Fund will pay Hang Seng an amount not exceeding 18 million yuan, and Hang Seng will provide fund sales and other related software development, system operation and maintenance, training and other services. Since the actual controllers of Hang Seng Electronics and Tianhong Fund are both Jack Ma, they are related legal persons.

The situation is similar for ZhongAn Insurance. From January 1, 2015 to April 30, 2016, ZhongAn Insurance will pay Hang Seng an amount not exceeding RMB 10 million to purchase Hang Seng-related software development and other services.

On December 3, 2014, Hang Seng Electronics announced that it had signed an "Agreement on Routine Operational Related Transactions" with three companies under the Alibaba Group, namely Alibaba Cloud, Zhejiang Taobao , and Taobao Software, and five companies under the Ant Financial Group, namely Alipay, Alipay Hangzhou, Zhaocaibao, Jifenbao, and Ant Financial.

Among them, the total amount of related transactions between Hang Seng and Alibaba-related companies does not exceed RMB 34.4 million, and the total amount of related transactions between Hang Seng and Ant Financial-related companies does not exceed RMB 35.3 million. The transaction period is from October 1, 2014 to December 31, 2015.

During this period, Alibaba and Ant Financial purchased IT services from Hang Seng, and Hang Seng also purchased related services and products from Alibaba and Ant Financial.

For example, Hang Seng purchased cloud services from Alibaba Cloud for no more than RMB 26 million, and Hang Seng had to pay no more than RMB 8.4 million to open an official flagship store for fund sales on Taobao. Hang Seng purchased payment and payment services from Alipay, and Alipay also purchased software and technology from Hang Seng. Roughly speaking, the total amount of the above-mentioned related transactions is about RMB 97.7 million.

How to clarify the ongoing related transactions among the three parties and achieve fair market pricing without harming the interests of listed company shareholders will be challenges that Jack Ma's increasingly large Internet finance sector must face.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.