IPOs: BOC Aviation Set for Take-Off, P2P Lender Lufax Delays

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Bottom line: BOC Aviation’s stock will debut with a 5-10 percent gain when trading starts on Wednesday, while Lufax’s delay of its IPO plan looks prudent until China’s P2P lending sector settles down.

BOC Aviation set for strong debut

After running into some early minor turbulence, Asia’s second biggest IPO of the year is set to take off later this week in Hong Kong when aircraft leasing company BOC Aviation begins trading in what should be a relatively buoyant debut. But the ride to market is looking a bit rockier for Lufax, with reports that what could become the first IPO for a P2P lender is being delayed until next year. Lufax had earlier signaled it planned to make its listing this year, most likely in Hong Kong or Shanghai. But its plan is being delayed as Beijing moves to clean up the nation’s unruly P2P lending market. 

IPOs in Hong Kong have been relatively sluggish this year and nearly non-existent in China, as investors lose interest in volatile stock markets that kicked off 2016 with a huge sell-off. Since then the markets have stabilized somewhat, mostly due to huge trading restrictions and other moves that have sharply reduced volumes and prompted many people to look for other investment options.

Against that backdrop, BOC Aviation’s near-completion of its IPO looks like a major accomplishment due to its large size, which came in at HK$8.7 billion ($1.1 billion). The company, which was spun off from Bank of China (HKEx: 3988; Shanghai: 601398), had originally hoped to raise up to $1.5 billion, and only reached its lowered target after selling about half of the shares to a group of well-known cornerstone investors from the state-run and private sectors.

BOC Aviation set its IPO share price at HK$42 a couple of weeks ago, and now the stock is set to debut in Hong Kong on Wednesday. (English article) The IPO price gives BOC Aviation a relatively high valuation compared to its peers, partly due to the company’s access to cheap financing from its parent and also due to expectations for strong growth in the Asia air travel market. I’ve previously said I expect the IPO to debut moderately well, with shares likely to rise 5-10 percent on their first trading day.

Uncertain Landscape for Lufax

While BOC Aviation’s take-off has been relatively smooth, the same may not be true for Lufax, which is one of China’s leaders in the fast-growing but unruly P2P lending space. Such companies typically raise money from smaller private investors, and then lend the funds in big sums to larger borrowers.

China is rightly worried about these platform operators, which have been the source of several major scandals due to their newness and light regulation. One case saw major player Ezubao exposed as a ponzi scheme and collapse, but only after taking in $7.6 billion that included many people’s life savings. Other sites have collapsed after placing their users’ money into dubious investments.

China’s recent moves to rein in the sector have been a regular feature in local headlines over the last few weeks, creating an uncertain environment that has prompted Lufax to push back its IPO plans. (Chinese article) Word of the delay came from Lufax chief Greg Gibb, who predicted China’s field of P2P lenders will get winnowed to around 200 from the current 2,000 as the industry consolidates and weaker sites get shut down.

Lufax probably isn’t in urgent need of cash, since it just raised $1.2 billion earlier this year, valuing it at $18.5 billion. (previous post) Lufax has several strong points compared to many of its peers, including the presence of a foreigner with financial background at its helm and also financial services giant Ping An as its major backer.

Lufax’s latest funding round in January added more investors from the financial sphere, including Bank of China, Minsheng Bank (HKEx: 1988; Shanghai: 600016) and Guotai Junan Securities (Shanghai: 601211), adding to its credibility. Since it doesn’t really need any new money that urgently, delaying an IPO right now looks like a relatively prudent move until the sector stabilizes.

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