Alibaba's takeover of Tianhong to reshape online finance

Alibaba's latest takeover of Chinese fund management firm Tianhong will inject new vitality into China's online finance market, analysts believe.

Zhejiang Alibaba E-commerce Co., the parent company of Alipay, China's biggest online payment platform, will buy 51 percent of Tianhong Asset Management Company, according to a statement released on Wednesday by Tianhong's shareholder, Inner Mongolia Junzheng Energy & Chemical Industry Co., Ltd.

The statement said that Tianhong's registered capital will surge to 514.3 million yuan (83.69 million USdollars) from its previous 180 million yuan through the fundraising round announced Wednesday.

This will make Tianhong the country's largest fund management company in terms of registered capital, surpassing that of China Asset Management Co., currently the largest with registered capital of 238 million yuan.

Zhejiang Alibaba will invest 1.18 billion yuan for 51 percent of Tianhong's registered capital to become the largest shareholder of the company.

Inner Mongolia Junzheng and Tianhong's management will also buy more of Tianhong's registered capital.

Shares of Inner Mongolia Junzheng soared to the daily trading limit of 10 percent on Thursday.

Tianhong will remain independent in its operations, and the company's name, registration place, structure and management will stay unchanged, Chen Liang, spokesman for Alipay, said Thursday.

"Alipay has some experience in the field of online finance, and we hope the takeover will bring more Internet elements and mindset to the traditional fund industry," Chen said.

In June, Alipay joined hands with Tianhong to create a wealth management product, called Yu E Bao, for users of Alipay to transfer their Alipay balance into a Tianhong money market fund.

The product soon attracted millions of users after its launch, as it offers an annualized yield of about 4.5 percent, higher than the one-year deposit rate of 3 percent offered by commercial banks.

In the first 18 days, Yu E Bao gained 2.5 million users and raised more than 6.6 billion yuan, data from Alipay showed. Analysts believe its size will surpass 100 billion yuan by the end of year.

Liu Xiaoguang, chairman of the Beijing Capital Group, said cooperation between Alipay and Tianhong has been upgraded from a single product to the capital level, and the deal will offer Alipay a significant entry into the field of asset management.

Zhang Jianhui, a fund industry insider, said that the deal will optimize Alibaba's internal use of resources and ease its future development in the financial sector.

The takeover by Alibaba will undoubtedly create a strong competitor for other fund companies, but it will also accelerate the integration of the fund management industry and the Internet sector, Zhang said.

Zhang said that more Internet-based businesses may follow a similar path to tap into the fund industry, bringing new vitality to fund management companies in China.

Chen said that Alipay does not rule out the possibility of similar shareholding moves in the online finance sector in the future.

"We will insist on becoming an open platform for online finance, so we see all business partners as equal in terms of conducting innovation and creating value for our customers," Chen said.