Listing to boost Internet finance firms

An advertisement of Alibaba's financial arm Ant Financial in Hangzhou, capital of East China's Zhejiang province. (Photo: Long Wei/For China Daily)

More Internet finance companies can consider listing on the A-share market to gain acceptance and recognition in China, despite they should deal with the risks from loss guarantee and rigid redemption, industry experts said on Monday.

Zhang Yujun, assistant chairman of the China Securities Regulatory Commission, said in a meeting on Thursday that the regulator has invited China's largest private lending search service provider Rong360 along with Alibaba's financial arm Ant Financial to be part of the first batch of Internet finance companies that are likely to be listed on the A-share market.

Zhang said it after studying Rong360's fund raising capabilities, willingness to go for an initial public offering and business pattern.

Ye Daqing, CEO of Rong360, confirmed the development and said: "We are considering an IPO and the A-share market will be a good choice as it will increase our visibility and business profile in China."

He said that Rong360 still has to iron out some aspects like the structure of its variable interest entities, or special-purpose vehicles that allow firms to keep assets off their balance sheets.

In addition, the company is yet to achieve the required threshold for profitability for an A-share listing.

He said that though Rong360 had about 80,000 financial products on its platform, it achieved a trading value of just $300 billion in 2014 and was not profitable during the period.

Ant Financial plans to list on the A-share market, with an estimated valuation between 200 billion yuan ($31.95 billion) and 250 billion yuan, the Shanghai Securities News said last month.

Zhou Xiaochuan, governor of the People's Bank of China, the central bank, had on Thursday indicated that the government would soon come out with detailed policies for the Internet finance sector, which comprises Internet payment and crowd financing, as well as using the Internet to sell financial products.

Dou Erxiang, a professor at Peking University, said: "The regulators' keenness for coming out with policies shows that the Internet finance sector is now seen as a supplement to China's existing financial system.

"Encouraging good Internet finance companies to go public is necessary because it is a good way to improve their popularity, drive bad players away and to decrease overall costs," Dou said.

According to Dou, a good Internet finance company should have an innovative business mix and strong technology to collect and analyze credit data.

"China should step up the pace of regulations for the Internet finance sector, especially those for controlling systemic risk," he said.

Li Yaodong, research head at 01caijing, a portal that covers Internet finance, said the government backing will ensure rapid development of the sector, boost overall capital usage and broaden financing channels.

"From a securities regulator's perspective, we hope good companies with the right potential will get listed on the A-share market and contribute to the growth of the domestic stock market," Li said.

"The government is wary of the risks that could arise from overseas listings of Internet finance firms as they possess key financial data."

The trading value of China's booming peer-to-peer platforms hit 252 billion yuan in 2014, nearly double the level seen in 2013, according to the Internet Society of China.

While China's P2P lending platforms have emerged quickly, so have the risks associated with such enterprises.

Media reports have told of bosses of several P2P firms disappearing after the lenders failed to give investors promised returns.

Dou said the biggest risk for Internet finance firms is loss guarantee.

Lufax.com, the domestic P2P lending platform set up by the Ping An Group, which had promised to guarantee investors' losses, had overdue bad loans of about 250 million yuan, according to China Business News.

Li said the rigid redemption industry rules are another gray area for Internet lending companies. To avoid this, information transparency and loan loss provision are necessary, he said.