China's LexinFintech makes gains after $108m US IPO

The company sold 12 million American Depository Shares (ADS) at $9.00 apiece, the bottom end of the indicative range, according to a prospectus. It finished its first day of trading up 18.9% on the offering price and has since made further gains, closing at $14.39 on December 26.

The IPO represented a liquidity event for investors such as China Renaissance K2 Ventures, Matrix Partners, and JD.com, although none of them sold any shares. In fact, K2 and JD.com were part of a group of investors that subscribed to a further 2.96 million ADS at the offering price, easing the dilution effect of the new shares issued.

K2 now holds a 14.4% stake in LexinFintech, while Matrix and JD.com have 11.1% and 11.4%, respectively. Taikang Life Insurance holds a 6.1% interest and DST Global has 5.6%. However, Jay Wenjie Xiao, the company’s founder and CEO, holds a clear majority of the voting power – in addition to a 33.8% equity interest – because of the dual share structure.

LexinFintech established Fenqile in 2013. The platform targets college students and educated young adults aged 18-36 in China. This group has been underserved by traditional financial institutions, which lack the ability to properly assess young borrowers’ credit status and to offer financial products to meet their credit needs. As of September, it had 3.3 million active customers.

Fenqile mainly provides loans that allow borrowers to buy goods online and pay in installments, often working with the likes of JD.com and Apple. These loans are matched with diversified funding sources, including high net worth individuals through the Juzi Licai online investment platform and institutional partners that participate in direct lending programs or buy asset-backed securities.

Since its founding, the company has originated RMB60.1 billion ($9 billion) in loans, with RMB31.3 billion in the nine months ended September 2017 alone. As of September, the company’s outstanding principal balance of loans was RMB15.9 billion.

For the year ended December 2016, LexinFintech recorded RMB4.3 billion in operating revenue, up from RMB2.5 billion the year before. Over the same period, the company’s net loss dropped from RMB310 million to RMB118 million.

LexinFintech’s first institutional funding came in July 2014 when K2 and Matrix invested $4.8 million. They re-upped four months later, joining DST, Bertelsmann Asia Investments, and Huaxing Capital in a $46 million round. This was followed by a $33 million commitment from JD.com in March 2015. The following year, the company issued $100 million worth of convertible loans to various investors and these converted into Series C shares in October of 2017.

LexinFintech’s listing follows that of Qudian, a micro-lending services provider with a similar business model. Other China financial technology players to have gone public in the last couple of months include Jianpu Technology, which is a subsidiary of financial products search and recommendation platform Rong360, and consumer finance marketplace PPDai.

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• Topics
• Greater China
• IPO
• Financials
• Technology
• China
• Matrix Partners
• China Renaissance
• JD.com
• DST Advisors