Chinese P2P Platform to Hold Off on IPO

A rare tale of moderation from the ballooning peer-to-peer lending market in China.

The boss of leading consumer and SME lender Renrendai has indicated that a public listing is not on the platform's radar at present, owing to the currently insufficient state of the regulatory climate. Co-Founder Yang Yifu voiced his IPO reservations whilst speaking to the South China Morning Post:

“We will go for an IPO eventually, but we don’t have a timeframe. We’ll probably do it after quite a long time.”

“With the existing regulatory uncertainty, the conditions do not permit us to go for an IPO.”

The lack of regulatory clarity within the Chinese market has been well-documented. In May the Chinese Academy of Social Sciences released a Risk Rating Report focused on the online lending space. Of all the companies surveyed, only 5 received a risk rating upwards of 80. Renrendai, incidentally, finished 2^nd overall with a rating of 83.

Commendable though such third-party efforts at risk assessment are, there’s no replacement for a dedicated regulatory regime. Fortunately, the month of May also ushered in news that a set of detailed regulations for the Chinese P2P sector would be released within the month – rules that would require all P2P platforms to be fully licensed. We continue to await an update on this front. Many are hopeful that a system will have been implemented by some point in July.

A tighter regulatory framework will likely accelerate the inevitable process of consolidation within the bulging Chinese market. Mr. Yifu of Renrendai insinuated that the most prudent course of action is to delay floatation until after a degree of natural selection (P2P-style) has taken place. China’s P2P sector is famously opaque at present, and Mr. Yifu suggests that the transparency and scrutiny that an IPO inevitably brings to a company would stand as a significant competitive disadvantage – at least in the short-term.

The Chinese P2P market has been growing at a phenomenal rate. Peter Renton of LendAcademy revealed at LendIt USA 2015 that the sector is home to 1,575 platforms, a total loan volume (at that time) of $41.3bn, and 1.2m individual lenders. VC money is swilling around the space in frenzied fashion. In only the past few months, we’ve covered a $485m equity fundraise for Lufax, an $84m round for Jimubox and a $40m Series B for Wanglibao.

Renrendai has shared in that growth. The platform’s lending volume in Q1 2015 (1.6 billion yuan) more than tripled its Q1 2014 origination total. To date, the platform’s cumulative lending volume stands at over 7.2 billion yuan, and the site boasts a grand total of 1.5m registered users. Renrendai also broke even last year.

Despite that rapid growth, Mr. Yifu believes the platform has as yet merely scratched the surface of a far larger opportunity:

“China has more than 100 million internet users, but only about 2 million are active users in P2P lending. We see a huge potential.”

Renrendai has the look and feel of a platform that is building success steadily and responsibly. As discussed, third-party studies appear to endorse that suggestion. The platform was reportedly the first in the Chinese market to regularly disclose its operating figures, and has also set up a RateSetter-like risk reserve fund, offering a level of default coverage. Mr. Yifu’s line on going public stands as further cause for optimism. As the Renrendai boss summarised:

“We are not in need of capital, but an IPO doesn’t relate only to capital needs. As we are a financial service company that needs to show our credibility and transparency, we will still need an IPO in the future.”