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On March 28, Hangzhou-headquartered Chinese payment service provider, Lianlian Digitech (Lianlian), went public on the Hong Kong Stock Exchange (HKEX). The initial public offering (IPO) yielded gross proceeds of HK$657.15 million ($83.9 million) at HK$10.22 per share, which dipped by 7.6% by close of listing day and stayed around HK$9.5 per share by the time this story published.
Reports have said that the IPO from Lianlian was a compromise from what was an original aim of $500 million sought in June last year, when it first applied to list on the Hong Kong bourse. The final size was one sixth of the original target, making Lianlian Digitech yet another new stock that reflects a dampened IPO market in Hong Kong since last year. Chinese bubble tea maker Chabaidao also saw its shares slump after it raised around HK$2.6 billion on the HKEX in April.
Lianlian, whose main business is to facilitate cross-border payment collection for Chinese e-commerce vendors, is seen as a major competitor of Ant Financial, the Chinese tech giant from Alibaba Group that owns Alipay. The latter sought the world’s (potential) largest IPO at $34.5 billion back in October 2020, which was suspended by regulators at the very last minute.
Yet Lianlian’s transaction is worth noting in that it was the first fintech firm approved of an offshore listing by the China Securities Regulatory Commission (CSRC), after the watchdog issued its registration-based IPO rules late last March. The new set of rules requires every single listing of Chinese companies on Hong Kong or US stock exchanges to be greenlighted by the regulators before proceeding with the IPO process.
FinanceAsia spoke to analysts, participants of the deal and a Lianlian spokesperson, to discuss what to expect from China’s fintech industry and Hong Kong’s stock market over the next couple of months.
Regulatory interaction
Lianlian’s IPO was greenlighted by CSRC on February 7, five months after its initial application on July 12 last year, as revealed in the global offering.
Ping Wei, Lianlian’s chief financial officer (CFO), told FA that it was the firm’s strong compliance capabilities that made the approval process relatively smooth. Lianlian has obtained 64 payment-related licenses as of end-2023, including all US states, Hong Kong, the UK, Indonesia, Singapore and Thailand, an achievement ‘that nobody comes even close’ to in the Chinese market, she said.
A good long-term relationship with local, industry and national regulators, with a track record of data protection, anti-money laundering and anti-fraud compliance among others, is key to Lianlian’s successful carrying out the IPO, she added.
Hangzhou Urban Investment Industrial Development Investment Partnership (LP), controlled by Hangzhou’s Municipal People’s Government; and Hangzhou High-tech Venture Capital, wholly owned by the Finance Bureau of Hangzhou High-tech Industrial Development Zone and the Finance Bureau of Binjiang District of Hangzhou, participated as cornerstone investors, taking up a total of 35,693,000 shares, or 8.52% of total issued H shares after global offering.
Li He, partner at Davis Polk Hong Kong, who advised Lianlian on its IPO, said that this transaction is also the first time where the CSRC specifically sought the opinion of an issuer’s industry regulator.
Given the novelty nature of Lianlian’s business model, the approval process is an interactive and mutual one.
“Both sides learn from each other, on the payment technology itself or other latest developments in this space,” he said. Advising on and vetting such fintech deals requires extensive knowledge on the evolvements of both technologies and business models, he added.
The Davis Polk team is working on a number of transactions in the fintech space, He told FA, saying that “the success of Lianlian’s deal is a positive sign for other industry peers looking at going public offshore”.
From a legal perspective, Jason Xu, Beijing-based Davis Polk partner, said that Lianlian’s variable interest entity (VIE) holding of an Indonesian arm is another complexity to navigate when preparing the disclosure – the firm operates in Indonesia via contractual agreements with local entities under the Starlink, of which the parent firm holds a 67.5% share. Xu said: "Such arrangements are more common among foreign corporates operating in China to address foreign investment restrictions but are rare for PRC-incorporated companies seeking a listed in Hong Kong."
Lianlian is the first sizable Chinese firm with such overseas VIE structure in Indonesia, said Xu. Communications with Indonesian, mainland Chinese and Hong Kong regulators are therefore essential when drafting the disclosure documents.
Shrunk size
Lianlian first applied for its IPO in June 2023, aiming at $500 million equivalent according to reports. The final size at HK$657.15 million was a sixth of the initial target.
Lianlian’s Wei explained that the team was aware of a relatively low market sentiment in Hong Kong since they filed for listing – the Hang Seng Index has plunged by some 3,000 points by the time the firm launched its IPO.
She told FA that acquiring a listed status would bring visibility, a higher level of trust, among many other benefits for the firm, part of the reason why Lianlian decided to proceed with the IPO process despite a tough market. The greenlight from regulators itself represented a confirmation of the firm’s high compliance levels, she added.
China International Capital Corporation (CICC) and JP Morgan acted as joint sponsors, overall coordinators, joint global coordinators, joint bookrunners and joint lead manager of the deal. BNP Paribas and Deutsche Bank (DB) participated as joint global coordinators, joint bookrunners and joint lead managers, together with nine other joint bookrunners and joint lead managers.
Nora Yeung, co-head of Apac equity capital markets at DB told FA that the IPO was structured to allow for full visibility of the order book before launching. “We strategically built in a an ‘offer size adjustment option’ which allowed the base deal to be upsized by 15% (before exercise of the greenshoe) and the company exercised the upsize option in full on the back of strong demand.”
She also noted that institutional investors and sector specialists were interested in the deal during the marketing process because they had not participated in an IPO from a cross-border payment company in the region for a long time. The scarcity value and Lianlian’s leading position have all contributed to great interest. In line with the overall market sentiment, investors were generally more “valuation-sensitive”, asking for a higher safety margin to participate.
However, despite the fact that the scarcity value and Lianlian’s leading position have contributed to great interest, Yeung said that investors were generally more “valuation-sensitive”, asking for a higher safety margin to participate.
Derek Chung, head of financial institutions group at DB Asia, pointed out that the transaction was welcomed by retail investors at a 15-times oversubscription rate, leading to an increase in retail allocation from 10% to 30%. The team, same as Davis Polk, is also anticipating more Chinese fintech firms’ listing, especially in cross-border payment and e-commerce sectors.
CICC and BNP Paribas spokespersons declined to comment on the deal. JP Morgan did not respond to FA’s request for comments.
Gary Ng, senior economist at Natixis CIB, said that it ties into a generally low investment sentiment towards China-related assets. Compared to the golden years when Chinese tech firms managed to stay attractive with promising development stories, investors are now more concerned on regulatory uncertainties, risk management and stable growth prospect, he said.
Ng anticipated that Hong Kong’s stock market will continue to see more approved IPOs at relatively small sizes over the next few months. The market is now for firms that are ‘not too big’ to be put under strict scrutiny and who look for liquidity in the offshore market.
He added that it’s unsure whether Lianlian’s IPO could be seen as a positive signal for a rebound to more IPOs from the China’s fintech sector – after all, the transaction size and valuation are incomparable with those of the tech giants.
“The IPO was indeed successful in its completion itself under a challenging environment, but it’s not big enough to change the larger picture of how people view China’s fintech sector in general,” he added. A key water tester, as he put it, would still be a larger deal from tech giants such as Tencent or Alibaba sometime, to fully reflect regulators’ attitudes.
