IPOs: Lufax Plan on Track, Yunda Slips Through Backdoor

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Bottom line: Lufax’s reiteration of plans for an IPO by year-end indicate China’s regulator may increase new listing approvals as the market stabilizes, while progress in Yunda’s backdoor listing also may reflect a relaxing attitude by the regulator.

Lufax sticks to plan for IPO by year-end

After an anemic flow of domestic IPOs so far this year, building pressure and a stabilizing stock market may finally be prompting the regulator to step up the pace as we head into fall. That appears to be the thinking at Lufax, China’s leading P2P lender, which says it is still targeting an IPO by the end of this year, after previously indicating China would be its first choice for such a listing. Meantime, an easing of the IPO climate won’t come soon enough for parcel delivery firm Yunda, which has joined many of its peers in moving ahead with a backdoor listing plan in Shenzhen.

China’s conservative securities regulator has a much stronger role in the IPO process than its western peers, acting as a strict gatekeeper to regulate the flow of new listings. By comparison, most western stock markets use a simpler registration system that largely lets companies make IPOs whenever they want after filing necessary disclosure documents.

China was preparing to roll out a similar registration-based system this year to clear the huge backlog of companies waiting to list, and also become more market oriented. But then a huge sell-off on Chinese stock markets at the start of 2016 made the regulator postpone the plan indefinitely, over concerns a flood of new listings would put more downward pressure on the market.

But now the market has shown recent signs of stability, and is currently trading well above the lows seen at the start of the year. That stability may prompt the regulator to pick up the pace of new offerings soon, which may be why Lufax is saying it plans to make its highly-anticipated IPO by year-end, following earlier reports that indicated China was its first choice for that listing. (Chinese article)

Reiteration of the earlier timetable actually came from Lufax’s largest shareholder, financial services giant Ping An. After reports of the original year-end timetable came out early this year, Lufax’s chief said in May the plan might have to be delayed as China took steps to clean up a lightly regulated and unruly sector that pools funds from investors and then lends them to a wide range of borrowers. Lufax was worth $18.5 billion after a new funding round earlier this year, meaning an IPO would probably be worth at least $2 billion.

Starved for Cash

Meantime, Yunda is one of several major Chinese parcel delivery firms that have thrived from the nation’s e-commerce explosion in recent year. But most of the sector’s players are losing big money due to stiff competition, and also heavy spending as they seek to expand their national operations.

Most of those companies wouldn’t be eligible for domestic listings anyhow, since such listings require that a company be profitable. That has led most of the biggest players, such as SF Express and STO Express to make backdoor listings over the last year by injecting their assets into existing shell companies that are currently traded.

Previous media reports in June indicated Yunda was joining that queue and planned to use a Shenzhen-listed shell company named Xinhai (Shenzhen: 002120) for the offering. Now the latest reports cite a regulatory filing saying Yunda has injected 17.8 billion yuan ($2.7 billion) worth of assets into Xinhai, in exchange for new shares making it the listed company’s controlling shareholder. (Chinese article)

This particular plan was launched in late spring just after the regulator indicated it might slow down or even halt the flow of new backdoor listings due to a sudden surge in such offerings, particularly by companies that had recently privatized from New York and wanted to re-list in China. (previous post) But perhaps the regulator is moderating its earlier caution as the market stabilizes, especially for companies like Yunda that have lots of potential but are in dire need of cash.

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