FUND RAISING: Lufax Eyes $1 Bln Funding Ahead of Likely 2016 IPO

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Bottom line: P2P lending platform operator Lufax will attract mostly state-owned investors for its latest $1 billion funding round, setting the stage for a 2016 Hong Kong IPO worth $2 billion or more.

P2P lender Lufax eyes $1 bln funding

It seems I may have underestimated the clout of peer-to-peer (P2P) lending platform operator Lufax when I said in August it could be eyeing a 2016 IPO in the neighborhood of $500 million. That IPO still looks likely to come next year, most likely in Hong Kong. But it could be much larger, based on reports of a new mega-funding that would value the company at a whopping figure of up to $20 billion.

The new valuation would mark a huge jump from earlier this year, when Lufax was valued at $10 billion after its most recent $500 million funding round in April. (previous post) The bigger picture is that China’s P2P lending sector is growing fast but also rapidly consolidating, as Beijing weeds out smaller players that have been accused of everything from fraud to other practices that put individual lenders at too much risk.

Against that backdrop, Lufax, with its connections to one of Shanghai’s top financial companies, looks well positioned to emerge as a leader in P2P lending. Such lending is part of Beijing’s broader plan to bring more private investment into China’s financial services sector, in a bid to offset an expected lending slowdown from traditional state-run banks that are facing a bad-loan crisis.

I’ve previously said that the days of funding rounds worth $1 billion or more in China’s tech and finance sectors are probably finished for now, following a frothy market earlier this year that saw several such mega capital raisings. But it appears I wasn’t quite right, with word that Lufax is now eyeing this new massive funding round. (English article)

This particular fund raising appears to be in the very early stages, with Lufax just starting to approach potential backers, according to the latest reports. (English article) Lufax already counts financial services giant Ping An as its largest single investor, though the latest reports indicate Ping An won’t invest in this latest round.

Eyes on 2016 IPO

Lufax is aiming to get a valuation of $15-$20 billion from the round, meaning it would be selling around 5-7 percent of itself if it gets the terms it wants. Lufax hopes to complete the funding round early next year. Reports back in August indicated Lufax was actively considering an IPO for 2016 with an eye to raising $500 million or more. (previous post) Reports last week repeated that plan, adding that the IPO was likely to be in Hong Kong. (English article)

This particular deal would come just a month after another start-up, online video firm Mango TV, was reportedly seeking to raise a hefty 20 billion yuan ($3.2 billion) in its own second funding round. It’s significant that both Mango and now Lufax are both strongly tied to China’s state-run establishment, since Mango is a project of the aggressive TV broadcasting monopoly in interior Hunan province. By comparison, most of the mega-fundings we saw early this year were from venture-backed companies like smartphone maker Xiaomi, which relied heavily on foreign private equity to fund their growth.

I do suspect that Lufax will lean heavily on its state connections in this latest funding round, and we could see names like China’s national pension plan and its sovereign wealth fund, CIC, sign up to finance the deal. That’s not to say that Lufax isn’t a good investment, and it’s quite possible we could also see one or two big foreign names also sign on to this latest funding round. At the end of the day, I expect that Lufax should be able to raise the $1 billion without too much difficulty, and we could see the company make one of the world’s biggest IPOs next year worth $2 billion or more.

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