Hong Kong-based investment bank AMTD has advised one of its shareholders, L.R. Capital Group, to take a stake in Sohu.com’s Fox Financial Technology Group, according to AMTD chief executive Calvin Choi. The stake size has not been disclosed but Choi described it as less than 10% of Fox’s equity value.
Another L.R. Capital-backed investment platform, the $1 billion China Fintech Fund, has also participated in a the Series C round of financing in Chinese peer-to-peer lender Dianrong.com.
AMTD is at the heart of a group of companies connected by equity holdings that is forging a path into Greater China-related fintech. AMTD shareholders include L.R. Capital and China Minsheng Investment Group (CMIG). LR Capital and CMIG are also backers of the China Fintech Fund, along with GF Securities.
Fox Fintech is a peer-to-peer lender and technology solutions arm of Chinese internet company Sohu.com. Beijing-based Sohu.com is one of China’s biggest internet portals, and is listed on Nasdaq; Sohu’s name translated literally into English is “search-fox”.
Fox was originally known as Souyidai, and got its start offering online loans in 2014. Fox/Souyidai’s accumulated transaction volume since launch reached Rmb20 billion ($2.9 billion) at the end of 2016, according to a company press release.
The company has since expanded into consumer finance, credit analytics, leasing and commercial factoring. Its co-founders, Alex Ho and Lin Zhou, announced their desire in a March 7 press release to turn Fox into an online integrated financial management platform.
“L.R. Capital’s investment into Fox FinTech allows AMTD to tap into Sohu’s huge network of contacts and connectivity,” Choi told DigFin, which will include financial services such as leasing, insurance brokerage and consumer financing.
These are meant to complement AMTD’s existing relationship with Dianrong as well as a strategic stake in Youche.com, a second-hand car O2O (online to offline) company.
In August 2015, Dianrong raised $207 million from C-round financing, according to Crunchbase.com. China Fintech Fund and Standard Chartered Bank were the lead investors. Tiger Global Management, Sun Hung Kai Properties and Northern Light Venture Capital are among earlier, smaller investors in Dianrong.
Choi describes AMTD’s fintech fund as a longer-term investor than normal venture capital. He says whereas major V.C. groups look to exit via sales to strategic buyers, AMTD uses its fund to stay with investee companies both to keep abreast of digital trends as well as be in a position to support these companies with advice and underwriting.
“If we do their IPO as their lead bank, we have a real insight into the company,” Choi said. “We can chart the money pockets, the buyers, and the money left on the table,” which he says helps a company tap investors that appreciate its value.
AMTD also leverages the connections and technologies in investee companies with its other business activities. “We use their technology as an additional component to other investments we have,” he explained.
In the case of Fox and Dianrong, Choi says there is no conflict of interest in having stakes in two P2P lenders. This is partly because China’s market is so big and fintech companies’ business models are still nascent.
“But we also see they are different types of companies,” Choi said. “Fox has a lot of potential because of flows of people, technology and connections from Sohu. Dianrong has leading technology; its founder [Soul Htite] developed the technology for Lending Club in the U.S. and brought that to China.” Last year, Htite told media that he hoped to list Dianrong in 2017.
For now, however, Dianrong is looking to use fresh venture capital to get into supply chain management using blockchain technology. It was the first Chinese company to join the open-source Hyperledger community developing blockchains. On March 9, it announced it was developing China’s first blockchain with FnConn, the fintech arm of Foxconn Technology Group. Their ‘Chained Finance’ platform aims to direct supply-chain finance to smaller borrowers. Foxconn (not to be confused with Sohu’s Fox) is the mainland arm of Taiwan’s Hon Hai Precision Industry, famous for assembling Apple’s iPhones.
Dianrong is also keen to expand its business outside of China, particularly into Southeast Asia and possibly Hong Kong. “The international market knows Soul Htite, and has been watching the company since day one,” Choi said.
Dianrong already has a partnership in Korea with Hanwha Group to create a joint venture offering Dianrong’s technology to develop online lending for Korean consumers.