Based in Jiangsu Province, CN, China Commercial Credit (CCCR) scheduled an $18 million IPO with a market capitalization of $76 million at a price range mid-point of $6.5 for Thursday, August 8, 2013.
Nine other IPOs were scheduled for the week of August 5. The full IPO calendar can be found at IPOpremium.
- S-1 filed July 16, 2013
- Manager, Joint Manager: Burnham Securities
Through its subsidiaries and certain contractual arrangements, CCCR controls a microcredit company, Wujiang Luxiang, that provides direct loans and loan guarantee services to small-to-medium sized businesses. There is one office.
CCCR is priced at 90% of book value, but is subject to vagaries of operating in a country where financial regulations can be arbitrary.
annualizing Q1 '13
China Commercial Credit
Avoid CCCR on the IPO.
To put the above conclusions and observations in context, the following is reorganized, edited, and summarized from the full S-1 referenced above:
China Commercial Credit, Inc., through its subsidiaries and certain contractual arrangements, controls a microcredit company, Wujiang Luxiang, that provides direct loans and loan guarantee services to small-to-medium sized businesses ("SMEs"), farmers and individuals in the city of Wujiang, Jiangsu Province, China.
Jiangsu, which is an eastern coastal province, has among the highest population density in China and is home to many of the world's leading exporters of electronic equipment, chemicals and textiles. As a result, the city of Wujiang ranks as one of the most economically successful cities in China.
The SMEs, both in Jiangsu and other provinces in China, have historically been an under-served segment of the Chinese banking market. Due to the significant demand from SMEs, the number of microcredit companies in China is increasing rapidly. According to the People's Bank of China (the "PBOC"), there were approximately 5,600 microcredit companies in China with a total outstanding loan balance of over $80 billion as of September 2012.
Many SMEs and farmers have been borrowing at high interest rates from unregulated and often illegal lenders, referred to as "underground" lenders, to finance their operations and growth, contrary to the preferences of Chinese banking authorities.
Such high interest rate borrowing makes it difficult for businesses to grow, and also exacerbates China's concerns about inflation. Consequently, in 2008, the China Banking Regulatory Commission (the "CBRC") and the PBOC issued the 2008 People's Bank of China Guidance on the Microcredit Company Pilot Yin. Jian. Fa. (2008) (No.23) ("Circular No. 23") to establish a new type of financial vehicle that would provide microfinance for small borrowers.
The loans and services that CCCR offers bridge the gap between Chinese state-owned and commercial banks that have not traditionally served the capital needs of SMEs and higher interest rate "underground" lenders.
CCCR offers loans to meet borrowing needs with fixed interest rates. As of March 31, 2013, the typical size, duration and interest rate charged on our loans were between $16,000 (RMB 100,000) and $320,000 (RMB 2 million), for between 1 month and 12 months, with an average annual interest rate of 15.01%.
CCCR also provides guarantees to enable SMEs to obtain loans from third parties. Thanks to the stable relationships we have with local branches of the state-owned and commercial banks and our stable borrower base, we have been generating significant revenue from the interest income we generate from our direct loan and fee income from our guarantee business. In addition, by adhering to our strict underwriting policies, we have been asked to extend the term on less than 5% of our loans. Our borrowers may repay their loans and re-borrow at a later date.
As of December 31, 2012 and March 31, 2013, renewed loans constituted 73.26% and 90.3% of CCCR's total outstanding direct loan balance, respectively. As of March 31, 2013, approximately 197 out of the total 297 outstanding direct loans were renewed loans that were paid in full prior to maturity and then renewed. As of March 31, 2013, none of the direct loans including the renewed loans, have a term of more than 12 months.
Since Wujiang Luxiang's inception in October 2008, it has developed a large and growing number of borrowers in Wujiang City. All of the loans are made from one sole office, located in Wujiang City. As of March 31, 2013, it has built an 88.5 million portfolio of direct loans to 249 borrowers and guaranteed 146 loans aggregating $84.1 million for 115 borrowers.
The number of microcredit companies in China is increasing rapidly. According to data compiled by PBOC and released on its website, as of September 2012, there were approximately 5,600 microcredit companies in China.
The total loan balance from microcredit companies stood at $61.9 billion (RMB 533 billion), and new loans issued to microcredit companies in the year of 2012 hit $30.6 billion (RMB 141.4 billion).
In Jiangsu province, there are about 485 microcredit companies with total paid-in capital of $ 12.81 billion (RMB 79,83 Billion) and a total outstanding balance of $ 16.63 billion (RMB 103.6 billion) as of December 31, 2012, according to PBOC.
IPO'ing to get acquired?
In the city of Wujiang, to CCCR's knowledge, the Finance Office of Suzhou Government will not approve the establishment of any new microcredit companies in the near future, and therefore the competition among the current eleven microcredit companies for acquisition targets may be fierce.
Use of proceeds
CCCR expects to net $15.4 from its IPO.
Immediately upon closing of the offering, CCC will transfer $13,996,000 of the net proceeds received by CCC in this offering to a Hong Kong bank account of CCC HK CCC HK shall then permit such funds (USD) to be used by the Wujiang Shareholders, as collateral, to obtain a domestic loan (RMB) in an amount equal to $13,996,000.
The proceeds from the domestic loan will be contributed in their entirety to Wujiang Luxiang for the purpose of increasing its registered capital. The domestic lender will deposit the funds being lent to the Wujiang Shareholders into an escrow account designated or approved by CCC HK, from which the funds will be released to an account of Wujiang Luxiang, only upon CCC HK's written instructions, and the loan will be satisfied by the collateral.
CCCR intends to use $1,000,000 of the net proceeds of this offering for general corporate purposes, such as general and administrative expenses, capital expenditures, working capital and the potential acquisition of similar lending companies in the Jiangsu province of the PRC if good opportunities present themselves
Disclaimer: This CCCR IPO report is based on a reading and analysis of CCCR's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.