Jack Ma-owned Company to Acquire Stake in Chinese Fintech Service Provider Hundsun

In a regular press conference held by Ministry of Commerce (MOFCOM) on June 17th, spokesperson Shen Danyang said that MOFCOM has established the case on June 4th of the acquisition of a 100% stake in Hangzhou Hundsun Technologies Group Co. Ltd. (Hundsun Group) by Zhejiang Rongxin Network Technology Co. Ltd., a company that is 99.1% controlled by Ma. The acquisition is currently being reviewed by MOFCOM in compliance with the Anti-Monopoly Law of China, as the proposed transaction has potentially triggered the “Concentration of Business Operators” clause.

Hundsun Group controls 20.62% of Shanghai-listed Hundsun Technology Inc. Ltd., one of the country’s biggest trading software provider for securities and funds management companies. According to a filing with the Shanghai Stock Exchange made by Hundsun Technology Inc, the total proposed consideration is RMB 3.29 billion. Upon the completion of the deal, Jack Ma, through Zhejiang Rongxin, will become the actual controller of Hundsun, leaving the founder and executive team of Hundson collectively holding a 10% stake of Hundsun Technology Inc. Ltd.,

Monopoly or not?

According to the Investment Director of Zhejiang RongXin, Huang Chen, Zhejiang Rongxin initiated verbal contact with MOFCOM upon the execution of the agreement on April 1st, and subsequently filed with MOFCOM for antitrust review. The threshold for a Business Concentration Review is 2 billion RMB turnover in China within one accounting year. Hundsun’s turnover for last year was RMB 1.2 billion, according to its annual report, while Zhejiang Rongxin made only RMB 20 million in turnover. “Despite of Rongxin’s annual turnover being small, the combined turnover, taking into account of all its affiliated entities and its controlling subsidiaries, still surpasses the trigger amount.” Huang Chen said.

However, it is widely believed that the true reason for MOFCOM’s decision to establish the case is that Hundsun, as a software provider for institutional trading and liquidation systems, has a prevailing market occupancy share of 93% in funds management, 80% in securities broking, 90% in insurance broking and 75% in trust and asset management markets.

Data Security concerns

Another potential issue with the transaction is data protection. Jack Ma, as well as all his affiliated entities, might be able to get access to the financial data of its customers through its controlling position in Hundsun. However, an industry insider has expressed a different opinion: “Hundsun is merely a IT software provider. The maintenance and operation of the software is completely managed by customers themselves with Hundsun having no access whatsoever to their data after the delivery of the software.”

Small Micro-Finance and Alibaba’s Financial Cloud 

It is believed that Zhejiang Rongxin’s acquisition of Hundsun indicates Jack Ma’s intention to pave the road for further development of Small Micro Finance and Alibaba’s Financial Cloud service. In particular, Alibaba launched its cloud service in 2013, aiming to provide cloud-computing services to financial institutions such as banks, funds and insurance companies. So far, Financial Cloud has been providing services to over a dozen financial institutions in China. Undoubtedly, the acquisition of Hundsun’s technology and experience will greatly advance the business of both the Small Micro Finance platform as well as Financial Cloud.