China's P2P lender Dianrong mulls 2017 IPO

The Chinese peer-to-peer lender postponed a private funding round that was due to complete in March after the industry was rocked by a Ponzi scandal.

Chinese peer-to-peer (P2P) lender Dianrong.com is mulling a share float as early as next year, once Beijing's crackdown on illegal online fundraising takes full shape, according to the company's co-founder and chief executive Soul Htite. 

"I hope that it is next year," Htite told FinanceAsia on Wednesday on the sidelines of an industry conference in Hong Kong, when pressed on the subject on an initial public offering, after the company postponed a round of private funding.

An IPO would test investor confidence in China’s burgeoning but largely unregulated P2P industry after the mainland authorities in late January shut down Ezubao alleging fraud and misuse of funds. According to official Xinhua news agency, Beijing police arrested more than 20 people who allegedly took Rmb50 billion ($7.6 billion) from almost a million investors across 31 provinces. 

Established in 2014, Ezubao was one of the most high-profile online P2P lenders in China, promising investors an annual return of 15%. But it operated like a Ponzi scheme, paying investors returns from the new capital paid in by newer investors rather than from any profits earned. 

P2P lenders use technology to match-up borrowers and lenders and have grown rapidly in China. According to a Credit Suisse report, China's P2P loan balance stood at Rmb439 billion in the end of last year, up from Rmb104 billion the previous year, and is likely to expand to Rmb1.8 trillion by 2018.

To help keep tabs on the new industry, Chinese regulators in late December requested all P2P lenders disclose their total loan size and returns. In March, the Chinese central bank also set up a new unit called the National Internet Finance Association.

The Ezubao scandal has taken its toll on P2P startups that rely heavily on fresh capital to expand quickly. That includes Dianrong, whose fourth round of private financing was due to be completed by March this year but has now been delayed to next year.

"We have enough money to live for the next two years and we expect [the next funding round] to reach a point in the second quarter of next year," Htite told FinanceAsia.

As for the IPO, the 43-year old executive said the company prefers to list its shares near China but it has not yet decided where and when to do the share offering.

Htite declined to elaborate on the reasons behind the decision to delay its planned private placement but agreed that it would help to set a valuation benchmark for any subsequent public offering. 

Roadblocks ahead

Investors in the US have sounded an alarm over the prospects for some unicorns -- private technology startups valued at more than $1 billion -- as valuations have slipped.

A few notable exceptions like Alibaba's Ant Financial, which raised a record $4.5 billion in a second private financing round last month, is keeping Htite positive.

"The $60 billion market cap of Ant Financial is a confirmation to our industry," he said.

But the doubts are beginning to nag and as another senior executive at a large fintech company in China told FinanceAsia on condition of anonymity, Ezubao has for the time being at least made it harder for fintech startups to raise fresh private funding. "The Ezubao incident combined with global capital market pullback on tech and fintech companies means that access to private capital short term is much more challenging," the person said.

Dianrong in September raised $207 million from its third round of private financing from a group of investors led by Standard Chartered Bank, valuing the company at more than $700 million.  

US Tiger Global is an investor in Dianrong for an unspecific stake. The New York-based company has previously invested in China's e-commerce giants Alibaba and JD.com.

Founded in 2012 by Htite and his partner Kevin Guo, Dianrong has 26 offices in China and more than 300,000 active lenders. Htite, an American who grew up in Montreal, was prior to that head of technology at US P2P lender Lending Club. 

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