Financiers Fosun, Go To Market

P2P lender Ppdai raises new funds

News of major new fund-raising by 2 Chinese financial firms is casting a spotlight on the wide range of private lending organizations that are likely to emerge in the years ahead, fueled by Beijing’s desire to create a more efficient lending environment. In this case we’re seeing activity at opposite ends of the spectrum, led by a massive new rights offer by private equity giant Fosun International (HKEx: 656), and a more modest but still significant second-round venture capital investment for peer-to-peer (P2P) lending platform

Both of these moves spotlight the wide array of choices that investors will soon have for private-sector financiers in China. But this emerging sector will also carry significant risk, since Beijing is still trying to figure out how to adequately regulate this group to ensure its longer-term healthy development.

Let’s start with Fosun, which has just announced a plan to raise up to HK$5.18 billion, or about $670 million, through a rights offer for existing shareholders. (company announcement; English article) Fosun shares rose slightly after the announcement, indicating investors were happy to give the company more cash to fuel its recent buying binge. Fosun’s stock has roughly doubled over the last year, showing just how much investors like this company that has made a number of high profile overseas investments over the past year. Two of the biggest have included stakes in French resort operator Club Med (Paris: CU), and Caixa Geral de Depositos, Portugal’s largest insurance company. Fosun is also reportedly in talk to buy US publishing giant Forbes Media.

Fosun is one of China’s earliest and largest privately owned private equity firms, and is clearly seizing on that status to attract investment dollars to fuel its future purchases. I do find it slightly interesting that investors are so bullish on the company, since we have yet to see how well it will do in improving performance at some of its biggest recent investments. But the fact that it can compete with the big western private equity firms to close such deals is certainly impressive, and seems to indicate Fosun will be a name to watch in the liberalizing financial sector.

Next let’s look quickly at the much smaller, operator of a P2P website that brings together wealthy people and entrepreneurs looking to borrow money. This kind of service could become an important lending vehicle in the future for China, replacing the gray lending market that is far more difficult to regulate.

According to the reports, has just received its second round of venture funding worth tens of millions of dollars. (Chinese article) Investors in the new funding round include Sequoia Capital, whose name seems to be popping up everywhere these days, as well as Lightspeed China Partners and New York-listed wealth management company Noah Holdings (NYSE: NOAH).

Ppdai’s new funding comes just a couple of weeks after media reported that another P2P lender, China Risk Finance, was in talks with investment banks about making a New York IPO. (previous post) If those reports were true, then China Risk Finance could become the first major privately owned Chinese financial company to list in New York, potentially winning a premium for its first-to-market status.

Ppdai looks a bit further away from such a listing, and could even become an acquisition target for a larger rival like China Risk Finance. But regardless of how that individual situation plays out, the P2P lending market certainly looks like one to watch in the next few years, and could become an important source of funding for Chinese start-up companies as Beijing opens the financial services sector wider to privately owned firms.

Bottom line: A new rights issue by Fosun and sizable fund-raising by P2P financier reflect a coming boom in privately-funded financial services firms, some of which should make IPOs in the next 2-3 years.

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