Fintech giant Lufax Holding is raising about US$2.36 billion in its initial public offering, the largest share sale by a Chinese company making its debut on the New York Stock Exchange since e-commerce giant Alibaba’s float in 2014.
The Shanghai-based company is backed by China’s biggest insurer Ping An Insurance (Group) and follows in the footsteps of the insurer’s unit OneConnect Financial Technology, which raised US$312 million in its NYSE debut in December.
Lufax is one of several Chinese firms that have moved ahead with a US offering this year, despite efforts by the Trump administration to restrict access by Chinese firms to the US capital markets and technology.
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“New York is still a very good place for us to start in terms of the investor access, the analyst coverage, the market liquidity and the branding,” said Gregory Gibb, Lufax CEO in an interview with the South China Morning Post.
The Trump administration threatened in August to delist Chinese companies from US bourses and urged American college and university endowments to sell their holdings of Chinese stocks.
“Not a major concern,” said Gibb, who is hopeful that the financial regulators on both sides will reach an accommodation.
At the same time, several high-profile US-listed Chinese firms, including JD.com, NetEase and mainland KFC operator Yum China, sought secondary listings in Hong Kong as tensions rose between Washington and Beijing.
Lufax could follow them back to China at some point. “We have the luxury of choice over time,” said Gibb.
China’s third-largest online wealth management platform priced its 175 million American depositary shares (ADS) at the top end of the marketed range of US$11.50 to US$13.50 a share on Friday. The stock is trading under the symbol LU and fell 1.48 per cent to US$13.30 on its debut, in line with a tumble in the S&P 500 benchmark index.
Lufax’s share sale is the biggest US IPO by a Chinese issuer so far this year, topping the US$2.1 billion raised in August by KE Holdings, the online real estate platform backed by Tencent that is better known in China as Beike Zhaofang.
The listing is also the biggest IPO by a Chinese company on the NYSE since e-commerce giant Alibaba’s US$21.8 billion float in 2014.
Lufax is now the largest China financial technology player listed in the US in terms of market capitalisation.
The IPO valued Lufax after the listing at US$33 billion. Its last-known funding pegged Lufax’s value at US$39.4 billion at the end of 2018.
The personal financial services platform, with over 12.8 million active users, stopped facilitating new peer-to-peer loans in August last year, after a clampdown by Chinese regulators.
Regulation “has become much, much clearer than any time over the past decade,” said Gibb. “It’s one of the reasons we waited until now [to IPO].”
He added that regulation would continue to evolve, but the risk to Lufax is now limited.
“The strong pricing [of Lufax’s] IPO reflects the fact that the company has managed to successfully transform their business by exiting the legacy peer-to-peer operations,” said Cindy Wang, an analyst at DBS based in Hong Kong.
Lufax is deploying technology to crack the problem of how to finance small businesses across China, the bedrock of the economy.
The firm sees a sweet spot between traditional financial institutions, who do not have the technical skills to meet customers’ needs, and online-only technology-driven platforms, which may lack financial data and financial services skills to price credit risk appropriately.
Lufax’s US IPO comes as Ant Group puts the finishing touches to marketing the world’s largest IPO ahead of trading in Shanghai and Hong Kong on November 5.
Gibb said that Lufax’s average revenue per user was significantly higher than Ant’s because it had developed Big Data over time that allows the platform to accurately price bigger loans for a longer duration on average. Ant’s revenue per user is just 121 yuan (US$18.1).
“It’s really because of our data and our track record and the way we build our models that we can serve those segments in a way that they haven’t cracked,” said Gibb.
Lufax can also lean on its army of loans salesmen that it has built up over a decade, as well as on the Ping An ecosystem for referrals.
Gibb reckons that the number of players in the future that could gather troves of data, tie the data to a smooth customer experience and then deliver it online will be relatively few.
The coronavirus pandemic and the spread of 5G connectivity across China have accelerated people’s adoption of digital finance this year. Lufax has invested more in AI chatbots so people can transact more over their mobile phones.
“The virus was a big push, but with 5G your ability to create two-way interactive, human-like dialogue at a very low cost with high accuracy is accelerating,” said Gibb.
Lufax’s wealth management business has grown about 39 per cent each year for the past three years, peeling out P2P lending. In the 12 months to June, it has ballooned by 65 per cent, said Gibb.
Lufax’s total balance of retail credit hit 535.8 billion yuan, and the total client assets generated through its online wealth management platform stood at 378.3 billion yuan at the end of September.
To be sure, online financial services are unlikely to displace China’s traditional lenders any time soon.
“We think the consumer credit penetration is already quite high in China with household debt reaching around 68 per cent of China’s gross domestic product in the first half this year. While fintech lenders are likely to grow at a faster pace [than banks], it is hard for them to catch up with bank loans in the foreseeable future,” said Alan Tsang, a Hong Kong-based senior vice-president at asset manager Neuberger Berman, who specialises in Asia financial and fintech.
The bulk of China’s consumer credit loans are with banks, in the form of card loans totalling around 7.5 trillion yuan. This compares with 1 trillion yuan of consumer loans granted by fintech lenders, he said.
Lufax plans to use the proceeds from the listing to improve its technology infrastructure, product development, expand overseas as well as its sales and marketing activities, according to its prospectus.
Lufax’s 2019 historical price-to-earning multiple, at about 16 times, surpasses other Chinese fintech peers listed in the US, whose multiples have been languishing at three to four times, DBS’s Wang said, referring to Chinese fintech firms such as Yiren Digital and FinVolution Group.
Lufax could trigger an overallotment option to sell up to 26.25 million more shares to meet demand.
Goldman Sachs, Bank of America, UBS, HSBC and China PA Securities (Hong Kong) are active bookrunners for the offering, which the company expects to close on November 3.
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