China Microlender To Make US Listing
It’s a relatively slow day for financial news, so I thought I’d take a look at a very low-key IPO getting ready to launch in New York by a small Chinese microlender named China Commercial Credit. This particular offering is so small, set to raise about $18 million, that it normally wouldn’t be worth mentioning. But what’s interesting is that this is the first US listing of this size that I’ve seen by a Chinese lender, and could perhaps auger a wave of similar listings by a new generation of private Chinese banking firms.
China Commercial Credit’s IPO application is also somewhat significant because it’s only the second offering of that magnitude by a Chinese firm in the US this year. The only other US offering so far came just last week from LightInTheBox (NYSE: LITB), a tech company that is far more typical of the kinds of Chinese firms that like to list in New York. (previous post) LightInTheBox shares have zoomed more than 50 percent since their debut, boding well for future Chinese listings in general after a prolonged period of negative sentiment towards such companies.
It’s a bit unclear if that improving sentiment will work to the benefit of China Commercial Credit, whose IPO application was ignored by most media because it was so small. (English article) The company said it plans to raise $18 million by issuing $2.7 million shares for between $6 and $7 each. The middle of that range would give the company a market value of $76 million, hardly a big number but still large enough to make this a player worth watching.
Founded in 2008, China Commercial Credit describes itself as a a microcredit company that provides direct loans and loan guarantees to individuals and companies in its home province of Jiangsu. It booked a profit of $8.3 million on $12 million in interest and fee revenue for the 12 months through March this year. While those numbers aren’t huge, the high profit ratio compared with the company’s total revenue looks quite encouraging. What’s more, the market should have huge growth potential.
China Commercial Credit is exactly the kind of company that China needs right now, as most of the country’s traditional lenders are former state-run banks that have little or no experience lending to China’s increasingly important private sector. China Commercial Credit’s location in the relatively entrepreneurial Jiangsu province also looks encouraging, as there are undoubtedly many small businessmen in the region that need this kind of service.
We’ll have to watch how this deal prices and how the company’s shares perform on their debut. The fact that it’s being underwritten by a relatively small investment bank, Burnham Securities, means it might not get the attention it might otherwise command if a bigger name was handling the deal. By comparison, LightInTheBox had 4 underwriters, including heavyweight Credit Suisse on its relatively modest offering that raised about $80 million.
The strong first week for LightInTheBox could bode well for China Commercial Credit, though the impact could be limited since the 2 companies are in very different business lines. Still I’d say this IPO looks particularly interesting despite its small size, due to the fact that it’s the first of its kind in an area that could see very strong growth potential in the next few years.
Accordingly, I wouldn’t be surprised if the offering prices strongly, perhaps at or near the top of its range, and also notches a nice jump on its debut. That would certainly be an encouraging sign for other similar privately funded lenders, which could quickly follow with their own US listings over the next 2 years if this first offering is successful.
Bottom line: China Commercial Credit’s IPO could debut strongly in New York, as it becomes the first major overseas listing for a private Chinese lender focused on the private sector.
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This article was first published in the online edition of the South China Morning Post at www.scmp.com.
