PE-backed Lufax follows $2.3b US IPO with weak debut

The company sold 175 million American Depository Shares (ADS) for $13.50 apiece, the top end of the indicative range, according to a prospectus, eclipsing the $2.12 billion raised by online real estate player Ke Holdings in August. The stock opened at $11.60 on October 30 and peaked at $13.56 before falling back to close at $12.85.

While Lufax opted to list on the New York Stock Exchange, having previously considered Hong Kong, industry peer Ant Group is poised for a dual listing in Hong Kong and Shanghai. The company is expected to raise more than $35 billion in a heavily oversubscribed offering – individual investors alone applied for $3 trillion worth of shares – and achieve a market capitalization of around $313 billion.

Lufax has a market capitalization of approximately $31.3 billion. The company’s most recent private funding round – a Series C of $1.41 billion that closed in 2019 – was at a valuation of $39.4 billion.

Despite Lufax raising $3.1 billion from third-party investors since 2015, Ping An Group, the founder entity, had a post-IPO stake of 78.4%. In September, Lufax issued convertible promissory notes to most of the participants in its Series C in return for their shares. These notes convert into ordinary shares once the company lists. Qatar Investment Authority was the largest investor in the round, contributing $650 million.

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 ($21,800) 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.

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

Other backers 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.

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• Topics
• Greater China
• Financials
• Technology
• IPO
• China
• Ping An
• BlackPine Private Equity Partners
• CDH Investments Management
• CICC
• Qatar Holdings
• Primavera
• All-Star Investments