After Yirendai Ltd. (NYSE: YRD), China Rapid Finance Ltd. (NYSE: XRF) and Qudian Inc. (NYSE: QD) made their debut, another growing China-based consumer lending company, Hexindai, is coming to the U.S. market, according to MarketWatch's IPO Calendar. It could start trading as early as this week with a price range from $9 to $11 per share, the report said.
Hexindai is a Chinese provider of middle class consumer lending with a total of 144 branches located in 103 cities across China. The company filed with the Securities and Exchange Commission to raise up to $80 million in an initial public offering. The company has applied to list its ADSs on the Nasdaq Global Market under the symbol "HX." Network 1 Financial Securities Inc. is the underwriter.
Enjoying terrific growth in the last few quarters. Hexindai said that, “the total loan amount of our credit loans experienced rapid growth of 1,552.8% from the fiscal year ended March 31, 2015 to the fiscal year ended March 31, 2016, and 253.7% from the fiscal year ended March 31, 2016 to the fiscal year ended March 31, 2017. The total loan amount of credit loans increased by 256.5% from the three months ended June 30, 2016 to the three months ended June 30, 2017.”
<b>The demand is huge</b>
Hexindai might sound new to Western investors, but many people are likely to know its competitor, Yirendai.
Yirendai was the first Chinese internet finance firm to be listed on a U.S. stock exchange. Tang Ning, founder of Yirendai and also the founder of Yirendai’s parent firm, CreditEase, said in an interview with South China Morning Post that even with thousands of lending companies in China, he is still confident to generate competitive returns. “Our positioning is clear. We target individuals who need small loans of tens of thousands of yuan. No matter they need the money for consumption or for business, the unsecured loan offered on our platform is the solution, and the demand is huge,” said Tang.
How many lending companies are there in China? Almost 2,500 and the number is shrinking. According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015. Exactly how big is the market in total? The data shows that the outstanding loans generated from P2P lending platforms totaled $123 billion at the end of December 2016.
When asked about the new regulation, Tang conceded that “We need to do more in terms of investor education and communication as most of the international investors do not have a clear understanding of China’s credit market and financial innovation.”
<b>The policy flashed a huge warning sign for the P2P industry</b>
Unlike in the U.S., online lenders in China are not required to secure any lending licenses. Because of this regulatory vacuum, thousands of peer-to-peer (P2P) lending platforms mushroomed in China, among which some have been discovered to be little more than Ponzi schemes.
The most prominent case has been the notorious Ezubao. In January last year, police detained more than 20 people associated with the company, and the founder allegedly fled with more than RMB 50 billion ($7.2 billion) from nearly 1 million investors. According to an investigation conducted by Xinhua news agency, local authorities discovered the lending platform served mainly to enrich the managerment, and the company's Chairman, Ding Ning, for example, was reported to have spent $150 million on gifts, designer goods, luxury cars and property.
To ensure the safety of investors’ money, Chinese regulatory authorities have announced new policies that ban these lending services to students and require all P2P lenders to set up custodian accounts at qualified banks. Additional regulations are expected from the government.
“Listed or not listed, we all know that the online lending business is in a vulnerable gray area. More stringent laws on cash lending business will be enforced by the Chinese government,” one insider told the International Financial News.
<b>Look into the future</b>
While no one can claim to have a crystal ball, what’s clear is this: a huge wave of Chinese FinTech companies is coming to the U.S. stock market. How many will eventually survive and strive under the tightening regulation, only time will tell.
CapitalWatch staff will continue to cover this topic.