China has in recent years nurtured a batch of unicorns — technology start-ups of at least $1 billion in value. The time is coming for these companies to go public.
Leading the race for a public listing is Zhong An Insurance, China’s first online-only insurance firm. With an operating history of three years, the online insurer has already reached an estimated market value of Rmb55 billion ($8 billion), and it may further rise ahead of its expected listing in 2017.
Zhong An was able to achieve such a chunky valuation not just because of its high-profile financial backers including Tencent, Ant Financial, Ping An Insurance and Ctrip, but also because of its ability to challenge existing insurance companies with its innovative business model.
Unlike typical insurers, Zhong An does not own any retail outlets nor hire agents to conduct traditional face-to-face sales. Its clients do everything from signing insurance policies to making their claims on the internet.
This asset-light model allows Zhong An to spend more resources on product development and enhancing the quality of its services. The internet-based model also allows it to use big data more efficiently, according to bankers.
Bankers said the recent spate of privatisations of US-listed Chinese companies suggest Zhong An will likely choose to list either in Shanghai, Shenzhen or Hong Kong. In any case, it will be one of the highest-profile initial public offerings next year.
Another likely listing candidate is Shanghai Lujiazui International Financial Asset Exchange, commonly known as Lufax. Lufax is China’s largest peer-to-peer lending platform, mainly targeting individuals and small and medium-sized enterprises.
Established in 2011, Lufax has challenged traditional banks’ lending businesses by connecting creditors and borrowers through its online platform. It can match borrowers of different credit profile with creditors of different levels of risk appetite, thereby reaching clients traditional banks may not be able to serve.
The Shanghai-based internet finance firm was valued at $18.5 billion based on its pre-IPO fundraising in January this year, making it one of China’s largest unicorns. It is majority-owned by Ping An Insurance and backed by prominent financial institutions including Bank of China, Minsheng Bank and Guotai Junan Securities.
The big one
But perhaps the most-anticipated fintech IPO remains Ant Financial, owner of China’s largest online payment system Alipay. China’s largest unicorn is valued at about $60 billion based on its latest fundraising round in April.
At $60 billion, Ant Financial will be Hong Kong’s fourth largest public company if it chooses to list there, although the listing venue remains uncertain at this point.
Ant Financial is being touted by bankers as the most exciting unicorn in China because it covers such a broad spectrum of transactions. Its payment platform, Alipay — known as China’s Paypal — allows users to pay utility bills, top up mobile phone credits, buy train tickets or transfer money from a connected bank account.
The internet application’s business potential is supported by some eye-catching numbers. As of the end of 2015, it had over 400 million registered users — more than the entire US population. It processed $1.9 trillion worth of payments in 2015 alone, or about the size of South Korea’s gross domestic product.
These unicorns will make their way to the public market over the next few years because their increasingly complex shareholder structures makes them difficult for them to operate privately, according to industry experts.
Most unicorns have taken advantage of the abundant liquidity to raise private capital over the last few years. But while new investors can provide capital and share technical know-how, they also put pressure on these unicorns to go public in order for them to realise their investment.
Chinese unicorns that raised capital over the last two years are increasingly feeling the heat because of the bloated number of investors that have participated in their fundraising rounds.
Didi Chuxing, for instance, added a large mix of accounts — including Apple, Ant Financial, Poly, China Life Insurance and China Post Group — during its $4.5 billion fundraising in June, according to people familiar with the situation. The same goes for Meituan-Dianping, China’s largest group-buying website, which raised $3.3 billion in the largest fundraising in the online-to-offline sector.
Other unicorns that are expected to become listed companies include peer-to-peer lender Dianrong, web-based lender WeBank, internet search engine Wandoujia and crowdsourcing site Zhubajie.
For public equity investors, Chinese tech unicorns have remained akin to mythical creatures. But in 2017, investors will get a chance to declare just how real their valuations really are.