Lending Platform Eyes IPO, Camelot Delisting Looms
Nearly all of the Chinese companies to list in New York during the current IPO boom have come from the tech sector, but reports of a new candidate that combines tech and finance looks like an interesting one to watch. The company, China Risk Finance, operates a peer-to-peer (P2P) loan platform, and is reportedly talking to investment banks about a potential New York listing later this year. (Chinese article) That could provide investors with an interesting and potentially exciting chance to buy into China’s small but quickly growing private financial services sector.
While finance is hot, one area that’s moving in the other direction is Chinese IT services, with word that shareholders of struggling Camelot Information Systems (NYSE: CIS) have approved a deal to privatize the company. (company announcement) Word of this latest development comes 3 weeks after shareholders of rival IT services firm Pactera (Nasdaq: PACT) approved a similar deal, and could presage a privatization bid for the sector’s last remaining major US-listed company, iSoftStone (NYSE: ISS).
Let’s start off with a look at China Risk Finance, which operates an online platform that lets wealthy individuals lend money to entrepreneurs. Such funding is in big demand these days, since most of China’s traditional banks do most of their business with big state-owned enterprises and lack the experience and expertise to lend to the country’s vibrant private sector. The kind of platform operated by China Risk Finance excels in such lending, helping to fund an increasingly important part of China’s economy.
The latest reports cite unnamed sources saying China Risk has begun talking with investment banks about a New York listing, though the company itself declined to comment. (Chinese article) The reports point out the biggest risk facing the company is government policy, since regulation of this kind of service isn’t very developed and a clampdown could come at any time.
Such an offering would come as China embarks on a major new drive to inject more private sector participation into its financial services sector. Big Internet names like Alibaba and Tencent (HKEx: 700) have taken most of the recent headlines in that regard by rolling out financial services, which have largely targeted savers and spenders rather than borrowers.
Of course we’d have to see some financials before determining how attractive a company like China Risk Finance would be as an investment, and regulatory uncertainty would also merit strong consideration. But if the company is profitable and growing quickly, both of which seem likely, China Risk could well become an attractive play for tapping the nascent market for financial services offered by private companies.
While financial services look attractive, just the opposite is the case for IT services. Such outsourcing services were once the flavor of the day in China’s tech sector, as many expected the country to produce the world’s next Infosys (Mumbai: INFY) or Tata Teleservices. But the market suddenly got crowded with the rapid encroachment of western giants like IBM (NYSE: IBM), leaving most of the big Chinese names struggling for growth.
Both Pactera and Camelot were stock market darlings at one point, but their shares fell on hard times over the last 2 years after neither could post the kind of growth that keeps investors excited. If both companies are ultimately de-listed, which looks likely, it will leave iSoftStone as the last remaining New York-listed IT services company from China. But given iSoftStone’s own weak position, which included a net loss and anemic 13 percent revenue growth in its latest reporting quarter, I wouldn’t be surprised to see the company launch its own privatization bid soon.
Bottom line: China Risk Finance could provide an exciting play into China’s liberalizing finance sector, while Chinese IT services firms could disappear from New York with a likely privatization for iSoftStone later this year.
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