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Analysts negative on 9F’s NYSE IPO

Indie analysts wary of the pricing for the Beijing-based digital finance company’s $76 million listing.

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9F, a Beijing-based peer-to-peer lender that is trying to become a wealth-management company, is set to list on the New York Stock Exchange on Wednesday, August 14. Independent analysts say investors should pass on the deal.

“We will avoid the company at all costs,” said Ke Yan, analyst at Aequitas Research, publishing on SmartKarma.

Some of these concerns relate to Chinese regulators’ negative attitude toward electronic consumer marketplaces. Since 2017, authorities have clamped down on the sector. Many companies, including market leader Lufax, have tried to exit the business and reinvent themselves in wealth management or other services.

The company

9F’s strategy has been to create an ecosystem built around several portals, notably an app called OneCard, which connects consumers (borrowers) with investors as well as partner financial institutions, such as China UnionPay, and partner merchants like e-commerce player JD.com. UnionPay provides the payment rails.

While borrowers can use the platform to access consumer loans, like any other P2P, they can also borrow specifically to spend with OneCard’s merchant network. The company is building artificial-intelligence capabilities to personalize these offerings.

9F’s formal name is Beijing Jiufu Era Investment Consultant Company. Launched in 2006, it is known in China informally as Jiufu.

The company is backed by the investment arm of China Cinda Asset Management (a merchant bank originally conceived as a ‘bad’ bank for China Construction Bank’s non-performing loans) and Japan’s SBI Holdings.

It was founded by Sun Lei, previously a senior manager at China Minsheng Bank, a leading lender for small businesses. Sun owns 39.1% of 9F. In 2016, Sun led 9F’s acquisition of Primasia Securities Asia in Hong Kong as a stepping stone to international expansion, as well as to convert Primasia from a traditional to an online stock broker, collecting orders through a mobile app. In 2017, 9F also acquired Yue Tung Wealth Management, a Hong Kong insurance broker. 9F has begun operations in Indonesia, and made an unsuccessful bid to obtain a virtual-banking license in Hong Kong.

The proceeds of the IPO are slated for developing big-data capabilities, adding partners its ecosystem, marketing, and international expansion into other Southeast Asian markets.

Analyst concerns

Analysts are wary of the IPO, however.

Ke Yan notes 9F is one of the bigger digital-consumer finance shops in China, with Rmb55 billion ($7.8 billion) of outstanding loans. But loan origination fell in 2018, more than in other P2P businesses, and continued to drop in the first quarter of 2019, whereas comparable platforms saw loans business begin to grow again this year.

Although 9F is diversifying its business, fees to borrowers on these loans account for 85% of its revenues.

“The financial results are concerning,” said Donovan Jones, analyst at IPO Edge, on Seeking Alpha.

Another worry is that Sun Lei is combining the IPO with a secondary offering of 2.2 million American depository receipts to sell down 3% of his stake, “which is unusual for directors in Chinese ADRs,” said Arun George, analyst at Global Equity Research, on SmartKarma.

This raises the question of why the company is raising money at all. It is already sitting on a cash pile of $961 million.

And there are question marks over another principle, Ren Yifan, who owns 23.3% stake in 9F but a 48% stake in Jiufu Shuke, the onshore company that legally owns the business. Analysts say Ren isn’t involved in daily operations and don’t understand how he got his stake. They’re unsure of the company’s governance.

Another analyst at an investment bank in Hong Kong says the entire P2P industry still remains in a gray area in terms of regulation and the attitude of authorities. This analyst, who requested to remain anonymous because it’s deemed sensitive to talk about China’s P2P sector, added that it’s difficult to verify the true health of balances on their platforms: “We avoid the sector.”

What’s it worth?

Finally there is the valuation. In some respects, 9F looks attractive compared to other major P2P firms, such as Yirendai, Lexin Fintech, Qupital and PPDai.

The company will offer 8.9 million ADRs targeting a price range of $7.50 to $9.50 per share. At midpoint, it would raise $76 million to achieve a market value of $1.7 billion.

The size of its loan book allowed it to book $805 million in revenues for the 12 months ending March 31, 2019, which is average for the industry. Its operating expenses are also in line with peers. The company has successfully shifted its funding from P2P investors to financial institutions. It also boasts the industry’s lowest delinquency rates. 

But its recent profitability is attributed to ending spend on marketing and client acquisition; in the past year it has relied on repeat business and allowed growth to fall. Analysts worry that 9F’s earnings will not be sustainable if it returns to spending on marketing. 

The implied multiples of its IPO are cheap, but not cheap enough, say analysts. “9F’s fundamentals are at best a mixed bag,” said George. He calculates 9F would trade at a 5% discount to peers on a 2019 p/e basis, but at a 4% premium on a 2020 p/e basis. The company should offer at least a 10% discount, given its lack of a track record as a public company and ongoing declines in its core business.

The joint bookrunners for the IPO are Credit Suisse, Haitong International, CITIC CLSA, China Investment Securities International, and 9F Primasia Securities.

Company News

NexChange, Horton Point launch digital asset market

The aim is to create an environment for investors to build and manage portfolios.

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Asia-based blockchain venture firm NexChange Group announced a partnership with New York alternative investment firm, Horton Point, to launch a marketplace for the institutional digital asset management industry.

The Nexyst platform will provide access to a broad range of professionally managed, actively traded crypto strategies and passive investment solutions. Nexyst will debut its initial offering in October 2019.

Nexyst is created to provide better transparency and to improve investment decisions for institutional investors interested in the digital currency asset class. 

The platform will enable qualified investors to perform online fund sourcing, due diligence and monitoring, and customize portfolios by a number of parameters such as risk, return, correlation and drawdowns. Nexyst utilizes proprietary optimization technology powered by Eleven Marketplace OS to deliver customized portfolio solutions to each investor.

Nexyst will also provide fund managers with integrated access to CRM, data room, behavioral analytics and customer engagement solutions for enhanced marketing and investor relations.

The Nexyst ecosystem is supported by an active global blockchain community developed by the NexChange Group. Horton Point is responsible for manager sourcing and due diligence. In addition to a transactional component, the platform will provide manager research, value-added content and tools enabling both sides to interact efficiently.

“Our goal is to create a one-stop platform where qualified investors and fund managers can actively engage with each other in a secure and compliant manner,” said NexChange Group CEO and Nexyst co-CEO, Juwan Lee.

The intent is to create an environment in which qualified investors can make informed decisions about this new asset class, said Nexyst co-CEO and Horton Point CEO Dimitri Sogoloff.

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Company News

OKEx seeks global standards for crypto exchanges

OKEx seeks partners to develop a global self-regulated organization aimed at standardizing practices.

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OKEx, one of the world’s largest spot and futures digital asset exchanges, announced an initiative to create a self-regulated organization (SRO) aimed at standardizing exchange practices and policies. Similar to the World Federation of Stock Exchanges, FINRA in the United States, and the World Economic Forum, OKEx is engaging exchanges and market participants in the global crypto-trading community to become members of this initiative.

This SRO will be an independent, membership-based organization that is neutral and open to exchanges of all sizes and jurisdictions. Member exchanges will work together to define and adopt standards that will promote digital asset adoption globally, educate governments and regulators, and develop metrics and criteria for trading, listings, and reporting.

“Cryptocurrencies are global and decentralized, and the industry remains nascent, thus regulations by jurisdiction are not enough,” said Andy Cheung, head of operations for Malta-based OKEx. “The only way for exchanges to grow and deliver impact is by joining together to develop practices and policies that will set a global standard and adapt to regional regulatory frameworks.” 

Exchanges must clarify their operational practices and procedures in order to best cooperate with governments and encourage innovation in this sector.

OKEx invites other exchanges to join the company in establishing standards for market-making, listings, delistings of digital assets, and other items critical to the growth of the entire industry. Crypto exchanges share a common goal to protect investors and traders, and to foster innovation in the cryptocurrency ecosystem.

“While other organizations have introduced initiatives to elevate standards for crypto exchanges, most are focused on one jurisdiction. Our initiative is focused on creating a global SRO that can provide international standards,” said Enzo Villani, head of international strategy and innovation at OKEx.

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Company News

SWIFT and HSBC to define API standards for Hong Kong

The new standard will ensure higher levels of interoperability and improve customer experience.

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SWIFT and HSBC announce today they are joining forces to define a common industry standard JSON for APIs, re-using ISO 20022 components, the initiative will see the Hong Kong banking community working together to review and agree on this standard.

In July 2018, the Hong Kong Monetary Authority introduced its Open API Framework, to facilitate the development and broader adoption of APIs by the banking sector. Since its launch, over 500 APIs have been made available by the 20 participating banks.

The new standard allows merchants to setup direct debit authorization and initiate the collection instruction to bank on behalf of their consumers. This initiative by SWIFT and HSBC aims to avoid fragmentation on common use cases, speed up and ease API integration efforts and incremental investment for industry participants, and ensure interoperability with the Hong Kong Faster Payment System’s (HK FPS) underlying clearing and settlement system by reusing ISO 20022 as a standard.

ISO 20022 is already widely adopted by market infrastructures across the world, including HK FPS, and is set to become the new standard for cross-border payments in the years to come, making it a logical choice when adopting a new technology. 

Lisa O’Connor, managing director, capital markets and standards, APAC said: “In recent years, the financial industry has moved from safe payments to fast payments, and is now embracing richer data payments as the world is moving towards Open Banking. In this context, the adoption of a common set of standards, such as ISO 20022, is a necessity to ensure interoperability between systems and reap the full benefits of Open APIs.”

Nadya Hijazi, head of digital, global liquidity and cash management at HSBC, said: “At HSBC we understand that the market is rapidly changing, with customers more technologically sophisticated and digitally oriented in their approach. We are thus committed to meeting the demands for an industry that is faster, more personalized and easily accessible. At HSBC we see immense value in defining an ISO 20022 JSON standard and have adopted these standards in our Treasury APIs for collections in Hong Kong.” 

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Analysts negative on 9F’s NYSE IPO