PE-backed Chinese fintech player Lufax files for US listing

The company has raised $3.1 billion from third-party investors since 2015, but 85% of its equity is held by Ping An Group, the founder. This is because last month Lufax issued convertible promissory notes to most of the participants in its Series C round – which closed at $1.41 billion in 2019 – in return for their shares. These notes convert into ordinary shares once the company lists.

Qatar Investment Authority was the largest investor in the Series C, contributing $650 million. Other participants include Primavera Capital Group, All-Stars Investment, LionRock Capital, Macquarie, SBI Group, J.P. Morgan, UBS, Hermitage Capital, Goldman Sachs, United Overseas Bank, Bangkok Bank, and Sabre Capital.

BlackPine, CICC Capital and CDH Investments were among the earliest investors in Lufax, participating in an approximately $483 million round – at a valuation of RMB60 billion ($8.8 billion) – in March 2015. A Series B of $924 million closed in early 2016. The round included an additional $292 million from existing investors, which is why the prospectus puts the Series A at $776.6 million. By this point, the valuation had reached $18.5 billion.

Created in 2011, Lufax is formally known as Shanghai Lujiazui International Financial Asset Exchange. It was initially positioned as a peer-to-peer (P2P) lending platform and an exchange-of-exchanges through which institutions and retail customers could distribute and trade non-standard assets.

The company exited P2P lending last year following a government crackdown on the industry. P2P products now account for 12.8% of total client assets. Lufax continues to provide financing to small businesses that cannot rely on traditional channels – it estimates the unmet financing demand in China was $7 trillion in 2019 – but capital is sourced from banks, trust companies and insurers rather than high net worth individuals.

As of June, the company had facilitated retail credit for 13.4 million borrowers from over 50 institutional lenders, relying on credit data and analytics from other members of the Ping An ecosystem, in-house artificial intelligence-enabled underwriting systems, and an offline-to-online distribution team. Lufax has also moved towards larger ticket-size loans. In the first six months of 2020, unsecured and secured loans had an average size of RMB146,513 and RMB422,398, respectively. The average for the other top five non-traditional lenders in China is RMB5,000.

The company had RMB519.4 billion in loans outstanding as of June, of which 97.2% had no credit risk exposure. More than 99% of the RMB493.7 billion in new loans facilitated in 2019 were funded by third parties. In 2017, 75% of Lufax’s RMB288.4 billion in loans outstanding had no credit risk exposure. Of the RMB343.8 billion in new loans facilitated, nearly half came from the company itself.

The other leg of the business is wealth management, with 8,600 products offered to 44.7 million registered users and 12.8 million active investors. Lufax primarily serves as the broker, connecting customers with 429 third-party providers. Total client assets stood at RMB374.7 billion in June, down from RMB461.7 billion in 2017. This reflects the shift from B2C and P2P products – which previously fueled the lending business – to bank and asset management plan products.

Among non-traditional financial service providers in China, Lufax ranks second in retail credit and third in wealth management based on total assets, according to an Oliver Wyman study.

The company generated RMB47.8 billion in total income in 2019, up from RMB40.5 billion the previous year. Over the same period, net profit fell from RMB13.6 billion to RMB13.3 billion. In 2017, total income and net profit were RMB27.8 billion and RMB6 billion, respectively.

Lufax previously considered listing in Hong Kong, with its CFO saying in 2016 that preparations were being made for an offering by the end of the following year. The decision to go public in the US comes amid rising US-China tensions and a threat to delist Chinese companies trading in the US for failing to comply with accounting regulations. Meanwhile, Ant Group, China’s largest online credit services provider, is set for a dual listing in Hong Kong and Shanghai.

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• Topics
• Greater China
• Financials
• Technology
• IPO
• China
• Fintech
• CDH Investments Management
• BlackPine Private Equity Partners
• CICC
• Lion Rock Capital
• Primavera
• Qatar Holdings