Photographer: Krisztian Bocsi/Bloomberg

China Fintech IPO Fever Wanes as Regulators Weigh Crackdown

Updated on
  • Online lender PPDAI prices U.S. share sale below range
  • Regulators review rates charged by cash microlenders

The euphoria around Chinese fintech listings may be starting to wane. 

Online lender PPDAI Group Inc. raised $221 million after pricing its U.S. initial public offering below the bottom end of a marketed range. The stock climbed 1.2 percent to $13.15 as of 12:52 p.m. in New York. Rival Qudian Inc. fell below its offer price the week after its October debut in New York, before bouncing back.

PPDAI priced its offering a week after news that Chinese regulators are considering a crackdown on the country’s cash microlenders in response to claims that some have charged excessive interest rates. The initial public offering of Qudian helped trigger the regulator’s review of the sector, people with knowledge of the matter said earlier this month.

“One of the things that you’re seeing pretty clearly is the pullback of the risk appetite for these types of lenders,” Christopher Balding, associate professor at Peking University HSBC School of Business, said by phone Friday. Chinese regulators are right to be concerned about the “very rapid run-up in consumer lending,” he said.

Borrowing Rates

PPDAI priced its sale of 17 million American depositary shares at $13 apiece, after marketing them at $16 to $19 each. The stock started trading Friday in the U.S.

"Our goal is to build and find investors that really understand us from a long term and understand our business, our industry," Simon Ho, chief financial officer at PPDAI, said in an interview. "We are pretty happy with how the stocks are trading."

While Chinese law already limits lending rates to 36 percent annually, regulators are considering drafting rules to specify the cap applies to the cash microlending sector, people with knowledge of the matter said this month. In its IPO prospectus, PPDAI said total borrowing costs for some of its loan products exceed that level after adding in transaction fees.

PPDAI says it believes it’s in compliance with Chinese regulations, as the actual interest rate it charges is no more than the official ceiling. It warned in its listing documents that there’s no certainty local courts will take the same interpretation.

Ho said on Friday that he is not aware of any regulatory announcements lately on the industry and declined to comment on how any rule change will affect its income.

Retail Demand

Investor reception for PPDAI was a sharp change from other recent deals involving Chinese fintech firms, such as the listing of online insurer ZhongAn Online P&C Insurance Co. The company priced its $1.5 billion Hong Kong IPO in late September at the top of a marketed range, after local retail investors subscribed for nearly 400 times the amount of stock they were offered. 

ZhongAn shares have risen 28 percent from their IPO price, outpacing the 5.3 percent gain in the Hang Seng Index over the same period.

PPDAI isn’t the only Chinese fintech provider lining up to raise funds from the equity market. Fenqile, a Chinese online shopping mall that lets users pay in installments, has been planning a $600 million U.S. IPO, people with knowledge of the matter have said. Financial-product marketplace Jianpu Technology Inc. is meeting investors this week ahead of a New York listing.

Quant, which generates credit ratings and facilitates loans, and personal finance app provider Wacai have also been considering U.S. IPOs.

“The sentiment is different now,” said Chen Shujin, a Hong Kong-based analyst at Huatai Securities Co. “This business model is getting more attention after the listing of Qudian, but at the same time, people are a lot more aware of the risks.”

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