Dianrong adds Orix, CLSA investment; eyes M&A

The fintech start-up raises $70m from Japanese and Chinese financial powerhouses. It could use the money to execute acquisitions ahead of a long-awaited IPO.

Chinese online lending start-up Dianrong has added two more big-name backers to its impressive roster of investors, with Japan's Orix putting in $60 million of a $70 million additional series D fundraising round that also included $10 million from financial services firm CLSA.

Dianrong said the extra cash – on top of an initial $220 million Series D round led by Singapore government fund GIC in August – would be used for purposes including research and development, as well as M&A opportunities. The company stressed it remained well capitalised, but said it has made no decision yet on a long-awaited initial public offering.

The deal underscores massive interest in China's booming financial technology, or fintech, sector. In particular, it's a sign of investor confidence in Dianrong, led by entrepreneur Soul Htite, and its business model of making loans to individuals and to small and medium-sized businesses.

Co-founder Htite, who was last month named executive chairman in a management reshuffle told FinanceAsia in an email response to questions that the money would be used for a "variety of business purposes, including enhancing fintech solutions and infrastructure, accelerating the R&D pipeline and taking advantage of M&A opportunities".

The company made its first M&A splash in July last year when it purchased the asset-origination arm of Quark Finance, in what was hailed as a groundbreaking deal. Along with the management shake-up, it was also seen as heralding an imminent IPO – which Dianrong has been mulling for several years.

Htite told FinanceAsia the company remained "well capitalised" and continued to benefit from investors like Orix and CLSA who understand fintech and support our growth strategy".

He added: "That said, we continue to explore all our options in the capital markets and no final decisions have been made."

Dianrong said it had issued some Rmb47 billion worth of loans as of December.

Fintech frontier

For Orix, which is investing through its China-focused Orix Asia Capital unit, the deal offers a slice of China's booming fintech sector.

“Dianrong is at the frontiers of fintech and we are delighted to be part of their journey," said Kiyoshi Fushitani, director and corporate executive vice-president at Orix, in a statement announcing the deal. "Beyond the investment, Orix is looking forward to collaborating with Dianrong in China and emerging Asia."

The investment comes just weeks after Htite, who co-founded Dianrong five years ago, moved from co-chief executive to executive chairman, with a particular remit to "identify new strategic fintech partnerships across Asia-Pacific".

“Orix is an amazing company with global reach and a proven commitment to innovation and value creation," Htite said in the statement. "We are thrilled to welcome them to Dianrong and look forward to working together to further leverage fintech to better serve the financial needs of small businesses in China and across the region."

Also joining the investment in Dianrong is CLSA, the international platform of Chinese broker Citic Securities which conducted its own due diligence and discussed the deal separately with Dianrong. 

"CLSA is focused on investing into China’s growth sectors and supporting companies that we believe have excellent potential to expand and innovate," said chairman Zhenyi Tang. "To that end, we are delighted to further Dianrong’s ongoing efforts to put financial technology to work for China's millions of small businesses and lenders."

A CLSA spokeswoman declined to comment on what the deal might mean in terms of winning a mandate to help arrange Dianrong's IPO.  

Orix and CLSA join an impressive roster of backers in Dianrong, which include China's CMIG Leasing, Korea's Simone Investment Managers, Standard Chartered Private Equity and Tiger Global Management.

Regulatory picture

One key concern for online lenders in China has been the approach of regulators to the blossoming online lending sector.

In November, the People's Bank of China (PBoC) put the brakes on new players in the sector – sending shares in some US-listed lenders tumbling.

That has left businesses anxious to work with regulators to ensure a sustainable framework for an industry that has rapidly grown to a value of Rmb1 trillion ($150 million).

Dianrong, which holds the executive directorship of PBoC-led self-regulator the National Internet Finance Association of China, expressed no concerns about the regulatory tightening.

"We believe China is striking the right balance between consumer protections and driving business growth for marketplace lending," Htite said in his email.

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