Bottom line: Qudian's IPO will get a moderately warm reception in New York, drawing interest due to its status as a major private fintech firm but also wariness owing to many uncertainties in the young sector.
Anything involving movement of money has always been slightly problematic in China. Be it paying for things online, paying to play computer games or even borrowing small sums to buy something like a smartphone, nothing has ever been easy for Chinese consumers. That's mostly due to the creaky financial system they inherited when the country began its march into the modern era starting in the 1980s and '90s.
That lack of services has been a godsend for a new generation of companies that are now making their way to market by supplying some of the many basic financial services that consumers crave. An IPO by one of the largest of those looks set to happen in the next 3 months, with word that microlender Qudian (Private:QDN) has made its first private filings for a New York listing to raise up to $1 billion.
Qudian began life as Qufenqi, a lender to college students, focusing on loans averaging around 1,000 yuan ($145), a pop to help them buy items like computers and smartphones. That particular sector became a bit of a hot potato about a year ago, after some companies were discovered to be asking students for compromising photos of themselves to be used as collateral if they failed to repay their loans.
That scandal was an important turning point for Qudian, which decided the college student business was too limited and controversial and moved instead into broader consumer loans. Its target audience was basically people who would be good candidates for credit cards if they lived in the west. Such people often like to borrow small sums for some of their larger daily purchases and don't seem to mind paying inflated interest rates for that privilege.
All that said, let's zoom in on the latest headlines that have Qudian moving ahead with plans for a New York IPO that could be the largest by a Chinese Internet company since Alibaba's (NYSE:BABA) record-breaking offering in 2014. This particular offering won't come anywhere close to the $25 billion that Alibaba ultimately raised, but still could raise a sizable sum of up to $1 billion if and when it happens. (English article)
A report on the deal says Qudian has made its first private filings for the offering with the US securities regulator and is aiming to make its first public filings within the next two or three months. It's targeting a fund-raising total of $800 million to $1 billion.
New Generation of Fintech
There's not too much more to say about this particular listing, which could become the first major offering by this new generation of Chinese financial technology companies. One other company, peer-to-peer lender Yirendai (NYSE:YRD), made a far more modest $75 million offering in late 2015 and since then has seen its share price rise about 150 percent. That includes a 6 percent rise in the latest sessions, perhaps as investors got excited about the imminent listing of more companies like Qudian.
One thing to note about Qudian is the sheer size of the lending on its platform. The company facilitated 33 billion yuan worth of loans last year alone, and the figure is expected to more than double to pass the 80-billion yuan mark this year or more than $11 billion. That's quite a lot of microloans, testifying to the market's huge potential.
As to how the IPO will do, we probably need to see some more financials before we can say how attractive it will be. Yirendai now trades at a relatively modest price-to-earnings (P/E) ratio of about 12, meaning investors may still be wary about this group due to the many risks they will face in such a rapidly changing environment. Then there's also the competition factor from other financial technology companies, most notably P2P lending giant Lufax (Private:LFAX), which is planning an even larger Hong Kong IPO soon and Ant Financial, whose IPO could be the biggest of all from this new generation of companies.
At the end of the day, Qudian could get a slight premium if it can beat out all of its rivals and become the first major fintech company to market. I suspect it should get a better valuation and more investor interest than Yirendai, which is in a more controversial area. Still, the uncertainty factor is likely to keep many more conservative investors on the sidelines and I suspect the IPO will ultimately get a moderately warm reception.