LexinFintech is braving Beijing’s crackdown on peer-to-peer lending with a US share sale worth up to $132 million, banking on the market's overall bullish sentiment to steer the reduced offering through the sector's difficulties.
The Shenzhen-headquartered online micro lender, which launched the deal on Thursday, joins a flurry of other Chinese internet finance companies, including Qudian, PPDai and Hexindai, in their rush to raise capital with a New York listing as competition builds.
The four-year-old company pushed forward with its plans for an initial public offering on Nasdaq just as US equities continued climbing to record highs, unfazed by the Federal Reserve’s decision on Wednesday to raise its benchmark lending rate for the third time this year. The US central bank is also projecting a further three hikes in 2018.
That optimism, however, contrasts with the more cautious mood in China's micro-lending sector after the People's Bank of China said it would stop approving new lending companies and limit the scope of business for newly-established firms. The move is widely seen seeking to get a grip on the largely unregulated sector and its inherent credit risks after a period of exponential growth, although it could in the long run also assist established players by putting up barriers to market entry.
Shares in US-listed Chinese lending firms have been struck hard since the central bank announcement in late November. Qudian, one of the year's best-performing Chinese US IPOs after the company raised $900 million in October, lost nearly two-thirds of its value after its share price plunged to $11.49 from as high as $34.9. Smaller companies like PPDai were hit even harder, its share price plunging nearly 72% in less than two months.
LexinFintech wanted to raise as much as $500 million, according to its listing documents filed before the government crackdown. But aware of the sector's blustery headwinds, it seems to have since lowered its sights. The indicative terms -- 12 million American Depositary Shares for sale at $9 to $11 each -- show it may end up with only a quarter of that initially targeted amount.
Target young adults
Similar to other P2P lending companies, LexinFintech operates lending platforms that connect creditors and borrowers. It targets young educated adults with high consumption needs and high income potential. More than 90% of LexinFintech’s borrowers are aged between 18 and 36, according to the company’s preliminary prospectus.
It operates online financing platform Fenqile, investment platform Juzi Licai, and fund matching app Dingsheng.
The company said it raised $3.3 billion from individual investors last year, including institutional funding partners and asset-backed security investors. It is also on course for its first profitable year after reporting Rmb140 million ($21 million) in net income in the first nine months this year, reversing a $17.7 million loss last year and $46.9 million in 2015.
While China’s micro-lending business continues to expand as the overall consumption power grows, it remains to be seen whether LexinFintech can compete effectively with larger players such as Qudian, Ping An Puhui, Alibaba-backed Ant Financial, and Tencent-backed WeBank.
These companies compete on funding by cooperating with e-commerce companies and commercial banks. They also vie for new customers through referrals or social media platforms.
LexinFintech, similarly, has formed a strategic partnership with JD.com to offer its micro-lending services on its e-commerce platforms. It counts China Guangfa Bank as a banking partner and its custodian bank.
The company’s international roadshow takes in Hong Kong, New York, Boston, and San Francisco and runs until December 20, the day when the IPO is due to be priced. Trading is expected to begin a day after.
The joint bookrunners of the IPO are Goldman Sachs, Bank of America Merrill Lynch, Deutsche Bank, and China Renaissance.
