Will the U.S. Investors Welcome Another FinTech Company from China?

Jianpu Technology Inc., a wholly-owned subsidiary of Chinese FinTech firm Rong360 Inc., is expected to start trading on the New York Stock Exchange later today under the symbol JT.

Author: Selina Cheng   

Jianpu Technology Inc., a wholly-owned subsidiary of Chinese FinTech firm Rong360 Inc., is expected to start trading on the New York Stock Exchange later today under the symbol JT.

Following Qudian (NYSE: QD), Hexindai (Nasdaq: HX) and Paipaidai (NYSE: PPDF), Jianpu Technology plans to raise $214 million by offering 22.5 million ADSs at a price range of $8.50 to $10.50 per share.  Sequoia Capital CV, an investment fund affiliated with Sequoia, and the existing shareholder of RONG360 have indicated an interest in purchasing up to $7 million worth of the ADSs at the initial public offering price, representing approximately 3.3 percent of the ADSs being offered in this offering.

Jianpu Technology might sound like an IT company, but in fact, it operates under the "Rong360" brand, another peer-to-peer lending marketplace that provides loans, credit cards, and wealth management products in China.

However, unlike its peers, this platform is still losing money. According to the prospectus, Jianpu's revenues increased 170 percent to RMB 393.4 million ($58 million) in the first half of 2017 from RMB 145.9 million in the first half of 2016, but the company still suffered a net loss of RMB 49 million ($7.2 million) in 2017.

When asked about concerns over profitability, Daqing Ye, CEO of Rong360, argued that the company's net loss was shrinking.

According to the prospectus, the company's net loss decreased by 53.2 percent to RMB 49.0 million ($7.2 million) through the first six months of this year compared with a year ago.  Moreover, Jianpu's revenues increased 112 percent in 2016, while its net loss decreased by 7.2 percent versus year-earlier results.

There are some indications, however, that China's internet population has grown so rapidly that online platforms for financial products like Jianpu could enjoy an economy of scale and become profitable soon.

"There are significant opportunities across the value chain connecting users and financial service providers including online sales and marketing, data and risk solutions, IT solutions and loan servicing," Jianpu said in its IPO filing. "This market opportunity grew from RMB 77.6 billion ($11.4 billion) in 2012 to RMB 294.0 billion ($43.4 billion) in 2016 representing a CAGR of 39.5%, and is expected to grow from RMB 452.2 billion ($66.7 billion) in 2017 to RMB 1,669.7 billion ($246.3 billion) in 2020 representing a CAGR of 54.6%."

Image result for jianpu technology rong360

Apart from its net loss, the company is also facing a second challenge. Some analysts in China have raised concern with Jianpu's personal credit reporting businesses. The PRC government has adopted several regulations governing personal credit reporting businesses.

According to the Administrative Regulations on the Credit Reporting Industry, no entity may engage in the personal credit reporting business without approval by the credit reporting industry regulatory department under the State Council.  If any entity directly engages in a personal credit reporting business without such approval, the entity is subject to penalties including suspension of business, confiscation of revenues related to personal credit reporting business, fines and criminal liabilities.

Jianpu has no license or approval from the government yet, and therefore the company might be required in the future by the relevant governmental authorities to obtain approval or license. The existing and future rules and regulations may be costly to comply with.

Suning Financial analysts think its compliance concern won't be a big issue, because the credit reporting industry regulatory department under the State Council has not officially granted any approval for personal credit reporting businesses under such regulations to any entity as of the date of this prospectus. The exact definition and scope of "information related to credit standing" and "personal credit reporting business" under the current regulations are unclear.

CapitalWatch staff will continue to update on this IPO. 


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