IPOs: Yirendai Fizzles, Spotlights Fading NY Attraction for IPOs

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Bottom line: Yirendai’s IPO could auger a wave of similar new listings by Chinese P2P lenders next year in Hong Kong and China, though few are likely to choose New York due to fading sentiment from US investors.

IPO fizzles for P2P lender Yirendai

What’s likely the be the final Chinese IPO in New York for 2015 has debuted with a very appropriate thud, capping a year that saw just a handful of companies make such new listings. The latest IPO by P2P lending platform operator Yirendai (NYSE: YRD) has a few noteworthy angles, led by a 9 percent drop in its trading debut on Wall Street at the end of last week.

The investor indifference to Yirendai nicely summarizes what has been a dismal year for new Chinese IPOs in New York, as investors worry about China’s slowing economy and also lose interest in these smaller companies whose longer term prospects are unclear. At the same time, Yirendai marks the first IPO for China’s young stable of P2P lenders, and is likely to be followed by more next year. This debut will hardly encourage those companies to go to New York, and many could instead look for friendlier sentiment in Hong Kong or even on one of China’s newer boards for high-growth, unprofitable companies.

Yirendai is just the fifth Chinese company I track that has listed in New York this year, a huge drop compared to the much bigger number of similar listings last year that culminated with the record-breaking $25 billion New York IPO by Alibaba (NYSE: BABA) in September 2014. While new listings have dwindled, some 3 dozen companies now listed in New York announced plans to privatize during the year, including several like Sungy Mobile (Nasdaq: GOMO) and Momo (Nasdaq: MOMO) that were only listed for less than 2 years.

Against that backdrop, Yirendai was quite courageous to move ahead with its New York listing, and perhaps is now regretting that decision. The company raised a modest $75 million in its offering, which has been typical of this year’s limited number of IPOs from names like web designer Baozun (Nasdaq: BZUN), group buying site Wowo(Nasdaq: WOWO), and education services provider Hailiang (Nasdaq HLG).

Yirendai priced its American Depositary Shares (ADSs) at $10, which was actually the midpoint of their range of $9-$11. (English article; Chinese article) But then the shares slumped to as low as $8.35 during  their first trading session, before rebounding to close at $9.10, or 9 percent below their IPO price. That gave the company a market value of $900 million, which is certainly quite respectable for such a young industry.

Uncertain Outlook for P2P

The tepid investor reaction reflects a number of factors, including an increasingly lukewarm reception for Chinese listed stocks in New York. But it also reflects growing uncertainty surrounding P2P platforms, which bring together individuals with money to invest and borrowers. The sector has been in the scandal headlines for much  of the last 2 weeks due to the collapse of sector giant Ezubo, whose assets were frozen last week amid a government investigation.

We could well see many more collapses and subsequent asset seizures in the year ahead, as China’s economy rapidly slows and many of the loans made over these platforms go sour. Headlines following the Ezubo collapse were filled with reports of small-time investors who thought they were putting their money into a product similar to a bank savings account, without realizing how risky these lightly regulated companies are.

While the sector looks set for a clean-up next year, some of the bigger, better run lenders may proceed ahead with more IPOs. One of those is likely to be the Shanghai-based Lufax, which is backed by financial services giant Ping An and has said it aims to make an IPO in Hong Kong next year. (previous post) That offering could get good attention in Hong Kong, but the weak performance by Yinrendai in New York probably augers a much weaker climate in New York for IPOs by Chinese companies.

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