Deal focus: Linklogis embraces supply chain finance 2.0

China’s crackdown on peer-to-peer platforms has turned into an opportunity for supply chain finance providers. Previously dependent on P2P platforms to meet their capital needs, the country’s 78 million small and medium-sized enterprises (SMEs) are looking high and low for replacements. The supply chain finance industry will be worth RMB15 trillion ($2.2 trillion) by 2020, according to Forward Business, a Shenzhen-based consultancy.

Linklogis is one of the independents looking to take advantage of this opportunity. The two-year-old company raises capital to lend to SMEs across various industry supply chains through a combination of wealth management products distributed on Tencent Holdings’ asset management platform, issuing asset-backed securities (ABS), and sourcing capital from banks and brokerages. It then builds credit profiles of prospective borrowers using data collected from other partners in the same supply chain and this information forms the basis of lending decisions.

In addition, Linklogis provides financing off its balance sheet to small-scale suppliers that typically work with restaurants, retailers, and hospitals. The maximum loan size is RMB1 million.

The company recently raised $220 million in a Series C round of funding led by GIC Private, with participation from existing investors Tencent Holdings, Loyal Valley Capital, CITIC Capital, and Bertelsmann Asia Investments (BAI), while Global Logistic Properties (GLP) and Welight Capital came in as new investors. The round closed in less than five months and it gave Linklogis a post-money valuation of $1.05 billion.

The proceeds will go towards improving databases and risk control systems as part of efforts to upgrade to “supply chain finance 2.0,” according to Kun Ji, a managing director at Linklogis. “Version 1.0 focuses on connecting suppliers that have direct business relationships with ‘core enterprises’ - blue-chip buyers that hold the key data of the suppliers - but the range of suppliers covered under this method is quite limited. Version 2.0 uses blockchain and artificial intelligence (AI) to expand the client base,” he explains. 

Blockchain’s distributed ledger technology could enable the parties in a single supply chain to transfer, split up or share debentures issued by lenders in a frictionless way because every transaction would be encrypted and recorded. As a result, services could be extended into lower tiers of a chain that don’t have direct links with core enterprises.

Meanwhile, AI could vastly improve operational efficiency by reducing the human processing role in areas such as asset searching and matching, as well as client management, says Ji.

Linklogis’ determination to deploy blockchain and AI comes from Tencent, which has offered to give the company access to its own technologies, databanks, and marketing channels. The fruits of this collaboration are already apparent in the recently launched Linklogis-Tencent blockchain-powered financing platform.   

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• Topics
• Greater China
• Technology
• Financials
• Expansion
• China
• Financial Services
• TMT
• GIC Private
• Tencent
• CITIC Capital
• Bertelsmann Asia Investments
• GLP