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Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
The headwinds that brought down Ant Group Co.’s initial public offering now threaten a $ 22 billion dream from China Ping An Insurance (Group) Co. – to move from a financial group to a tech giant and be valued as such.
While Ping An’s Lufax Holding Ltd., which offers wealth management and retail loan services, was able to complete its initial public offering in the U.S. Days before new Chinese rules torpedoed the $ 35 billion sale of Ant, the stock has resigned. to initial earnings and is now a target for short sellers. Renewed threats from US regulators to phase out Chinese stocks also threaten Ping An’s plans to go public with more of its domestic startups.
The suspension of Ant’s IPO “fundamentally changed the short-term investment appetite” for Chinese fintech stocks, with Lufax as “the number one short consensus in the community,” according to a Nov.5 report from Procensus, which surveyed 84 global investors managing $ 15.3 trillion. The short interest accounted for about 34% of Lufax shares outstanding as of November 17, up from just 5% when the deal with Ant was closed, according to data compiled by IHS Markit. Ping An owns approximately 39% of Lufax after the IPO.
China’s increasingly strict control of fintech companies and antitrust crackdown complicate Ping An’s bets on raising its valuation closer to those obtained by tech giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. The Shenzhen-based finance firm, which makes three-quarters of its insurance revenue, is trading at roughly 10 times earnings. from 2019; Alibaba’s share is six times higher.
Ping An has pledged to invest more than $ 22 billion in research from big data to blockchain to make it more “technology” than “end”, while creating some of its units through public listings to maximize value.
Ten startups
The financial group has developed at least 10 startups in recent years after using technology to improve its traditional banking and insurance services. Units, including the publicly traded health portal Ping An Health care & Technology Co. and financial technology provider OneConnect Financial Technology Co., are aligned into five groups targeting finance, healthcare, real estate, automobiles, and urban life.
China’s move to impose loan limits and increase capital requirements on fintech companies presents headwinds for tech units, which also face threats in the U.S. The Securities and Exchange Commission has the intention of propose a regulation this year that would lead to the delisting of companies for not complying with US auditing standards, people familiar with the matter have said.
Lufax fell 23% in the Bloomberg News report on Tuesday, cutting profits to 8% from its IPO last month. OneConnect fell 3.1%, although it has still doubled this year. Ping an Health care It changed little last week in Hong Kong and has gained 78% in 2020.
The rapidly evolving regulatory framework for fintech companies and other issues like data privacy could delay IPOs for Ping An’s other units, according to Sanjay Jain, CFO of Singapore-based Aletheia Capital Ltd.
“Big technology will have to deal with increased regulatory oversight in various aspects, it is a global and unavoidable trend,” he said.
Other units that Ping An intends to make public include Ping An Smart City and Ping An HealthKonnect, which provides management tools for hospitals and other healthcare companies.
“Ping An’s pace of spinning off its technology subsidiaries over the past four years has not been as smooth as it originally guided the market, if you look at both the number of IPOs and their valuations,” said Leon Qi, a Hong Kong-based. Daiwa Capital Markets analyst.
Investors are yet to fully realize what technology can bring to Ping An, not just the value of IPOs, but the synergies with its core business, executives, including former Co-CEO Lee, have commented. Yuan Siong argued in recent years. Ping An declined to comment for this story.
While management has said it is in no rush to launch IPOs for the technology units, a The crackdown on peer-to-peer lending delayed Lufax’s listing for some years. What was once the largest P2P lender was transformed into a wealth management platform when the number of companies was reduced to three from more than 5,000.
“The company could have been listed for listing a couple of years ago, but the regulations were still unclear,” Lufax CEO Gregory Dean Gibb said in an interview. Now, “the rules are clear, the requirements are clear.”
Gibb spoke just three days before Jack Ma and other top Ant executives were called by Chinese regulators, derailing the record initial public offering that sent shockwaves through financial markets. New regulations to eradicate monopolistic practices reduced nearly $ 290 billion from the market value of Chinese tech giants in two days.
Lufax exposed
While Lufax may not be affected by China’s new rules as much as Ant, it remains “quite exposed” to the risks of regulatory caps on its interest rates, said Kevin Kwek, an analyst at Sanford C. Bernstein.
Gibb said Lufax’s offering of larger small business loans by combining its financial and data strength better meets clients’ needs. Its access to Ping An’s distribution network also provides a moat against tech giants and rival banks, he said.
– With the assistance of John Liu, Dingmin Zhang and Julia Fioretti
