China's fintechs look at overseas IPOs to raise funds

China's fintechs look at overseas IPOs to raise funds

The tightened regulatory environment in China is leading number of its largest fintech startups to consider launching initial public offerings (IPOs) overseas in order to raise funds.

China's A-Share market is only accessible to profitable companies, ruling it out as a fund raising option for the many fintech startups that have yet to make it into the red. This is especially true for the P2P lending platforms which have come under pressure ever since China issued new rules for the fledgling sector in 2016.

These rules, prompted by a number of fraud cases, mandate that P2P lenders appoint an independent custodian bank to oversee the use of deposits and also disclose more information about their operations. Consequently many P2P lenders are looking to raise more funds to cover the cost of compliance with the new rules and are looking overseas. 

“An increasing number of fintech IPOs in Hong Kong and the United States are expected to take place,” said Gao Jianbin, a PwC partner, speaking to the South China Morning Post. “They mainly aim to list in the US, though Hong Kong is also an option.”

Some of the larget Chinese fintechs taking such a step include Zhong An Online Property and Casualty Insurance, China's first online-only insurer, which has a customer base of more than 500m and is looking to raise up to $1.5m via a Hong Kong IPO. 

Others include Lujiazui International Financial Asset Exchange (Lufax) and Ant Financial, formerly known as Alipay, as well as a number of P2P lenders such as Ppdai.com, Neo Capital and Dianrong.

Should there be a spate of overseas IPOs, China's financial authorities will be left with a balancing act to perform - to encourage the development of homegrown fintechs but within the framework of an orderly and disciplined equity market structure. 

Previously the China Securities Regulatory Commission considered creating a listing venue at the Shanghai Stock Exchnage for its largest finetch firms and other emerging industries but the plan was abandoned in March 2015. And just this week China's authorities issued an immediate ban on initial coin offerings (ICOs), an alternative and cryptocurrency-based way of raising finance, ruling that they were a threat to financial stability.

Analysts believe IPOs are vital for fintech firms to boost their businesses, repelenish their capital and also attract talent but many of them maybe forced to do so overseas in the short term.

And there could well be a number of international exchange venues happy to compete for the business. Hong Kong Exchanges and Clearing has recently announced it is setting up a new board to attract listings of technology companies, which could include China’s fintech businesses.

 

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