IPOs: Lufax Kicks Off HK Listing, Xinhuanet Eyes Shanghai

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Bottom line: Lufax’s Hong Kong IPO could launch by the end of this year and will get a strong reception, while Xinhuanet’s Shanghai IPO will get a similarly positive reception due to strong support from state-run investors.

Xinhuanet approved for Shanghai IPO

Just days after the stodgy Postal Savings Bank of China launched an IPO that will be the world’s biggest in 2 years, the much higher-tech P2P lender Lufax has kicked off another Hong Kong listing that’s nearly as large. More specifically, Shanghai-based Lufax has begun hiring investment banks for a listing that could raise up to $5 billion, according to new reports.

Meantime, a flurry of new domestic Chinese IPO plans is also in the headlines, led by word that state-owned online news giant Xinhuanet has been approved for a new listing in Shanghai. China stock watchers might recall that Xinhuanet’s IPO plan first surfaced in the headlines 3 years ago, but was indefinitely shelved due to repeated slowdowns and freezes for new domestic offerings due to market volatility.

This pair of new listing plans nicely contrast the big differences between older state-run companies like Xinhuanet and newer private ones like Lufax. The state-run companies mostly operate in older industries like news, though Xinhuanet is trying to convince the world it’s a new media play since it operates a website. Meantime, Lufax is a very young company in a hot but also quite controversial P2P space, where companies take in money from individuals and then lend it to various borrowers.

Lufax has discussed its IPO plans since the start of this year, though the timing has changed a bit. First it said it was aiming to list by the end of the year, but then it said the plan might get pushed into 2017, only to later say the year-end time frame was still valid. This latest news does appear to indicate an offering is indeed likely to come in one of those time frames, since such a plan would typically take up to 2-3 months after the hiring of investment banks.

According to the headlines, Lufax, which counts financial services giant Ping An as its largest backer, is in talks with 4 investment banks about taking roles in an IPO. (English article; Chinese article) The four consist of local investment bank Citic Securities, as well as 3 foreign giants Citigroup, JPMorgan and Morgan Stanley, though none has been awarded an official mandate yet.

Citic is clearly being hired to court domestic Chinese investors, while the foreign banks will chase big international buyers. Previous reports have said Lufax is aiming to raise up to $5 billion. This particular listing will be a first-to-market for a P2P lender, and should get strong interest due to its leading position in the space. But the sector is also increasingly landing at the center of controversy due to growing cases of fraud, which could slightly dampen enthusiasm.

New Domestic Listings

Next there’s Xinhuanet, which was actually one of 12 companies to just get approval for new domestic IPOs from China’s securities regulator. (English article; Chinese article) New offerings in China have come to a near standstill this year after the regulator became extremely cautious following a major sell-off at the start of the year. So this new batch of IPOs will offer some relatively rare new shares for Chinese investors.

The 12 companies plan to collectively raise a relatively modest amount of up to 15.5 billion yuan ($2.3 billion), reflecting the regulator’s continued conservatism. Xinhuanet, the website of the official Xinhua news agency, first announced a revival of its IPO plan in June, saying it was aiming to raise about 1 billion yuan.

As I’ve said above, this particular plan was first floated in 2013 and had to be suspended due to market volatility. The fact that it’s finally coming to market reflects Xinhua’s strong government connections, since hundreds of other companies wanting to make IPOs are still waiting and may have to wait years more.

This particular offering will get lots of attention due to the Xinhua name and also strong support from state-run investors looking to curry favor with Beijing. But the company being listed looks like quite a dud with very limited potential due to its state-run ties, and I doubt any serious private long-term investors will be looking to buy the shares.

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