Fintech

More Chinese fintech firms to eye Hong Kong IPOs, says JP Morgan

China’s fintech market could grow to US$69b in revenue by 2020, according to the bank’s projection

PUBLISHED : Friday, 29 September, 2017, 7:31am
UPDATED : Friday, 29 September, 2017, 8:39am

More Chinese fintech firms vying to go public could choose Hong Kong as their listing venue, after the city’s first fintech IPO received a hot response from investors, and that Hong Kong has unique advantages compared with other global financial hubs, said JP Morgan’s head of global investment banking in China.

Zhong An Online Property and Casualty Insurance, China’s first online-only insurer, closed nine per cent up from its IPO price on Thursday in its Hong Kong debut. With an oversubscription of nearly 400 times from retail investors, the company had priced its IPO at the top end of the expected range, raising US$1.5 billion in the city’s biggest ever fintech offering.

JP Morgan, Credit Suisse, UBS and CMB International are joint sponsors of the deal.

Houston Huang, head of JP Morgan’s global investment banking in China, expected the IPO to mark the beginning of more fintech companies seeking a listing in Hong Kong.

“A good fintech IPO will have a ‘push effect’ on other Chinese fintech players, prompting them to consider linking with the capital market to raise fund,” he said.

“The next Zhong An could show up in online payment, P2P lending, [financial] product distribution, or online insurance.”

Huang expected China’s fintech industry to expand fast in the next few years, due to the rapid spread of mobile technology and the application of artificial intelligence.

A good fintech IPO will have a ‘push effect’ on other Chinese fintech players, prompting them to consider linking with the capital market to raise fund
Houston Huang, JP Morgan

“Technology is driving revolutionary progress in China, ” he said. “Fintech is an untapped market, with great growth potentials.”

China’s fintech market could grow to 460 billion yuan (US$69 billion) in revenue by 2020, with a 44 per cent CAGR (compound annual growth rate) from 2016 to 2020, according to a recent research note from JP Morgan.

In particular, revenue from online payment is estimated to increase to 202 billion yuan by 2020. Revenue from online distribution of financial products could grow to 52 billion yuan by then, while that for online lending and online insurance may reach 142 billion yuan and 60 billion yuan respectively.

In mainland China, companies seeking an IPO have to show profit in three consecutive years leading up to the application year, among other regulatory requirements.

Rules about profitability are less stringent in the US and Hong Kong, which gives the city advantages as described by Huang.

Hong Kong also has other strengths, such as its proximity to the mainland market, the Stock Connect schemes that allow mainland investors to directly trade Hong Kong stocks, and comparably lower listing costs than the US, he said.

The Zhong An IPO may prompt structural changes in Hong Kong’s capital market, which is trying to reduce its reliance on traditional sectors, such as real estate, financial services and energy, and increase the technology component.

Given the strong response received for the Zhong An IPO, investors’ knowledge and understanding about fintech had also grown, which could make it easier for future fintech companies to gain a reasonable valuation, he said.

China’s fintech firms eye overseas IPOs to fund growth as regulations tighten at home

Victor Au, chief operating officer at Delta Asia Securities, added that Hong Kong has a persuasive fundraising power, as the city has been among the world’s top IPO markets in the past few years.

“Hong Kong is an open market with free flows of capital and active trading,” he said. “These are important things for companies to consider.”

Hong Kong is an open market with free flows of capital and active trading
Victor Au, Delta Asia Securities

“The Zhong An IPO will set a good example for fintech firms from China and elsewhere to choose Hong Kong [as a listing destination], and also prompt the city to reposition itself and boost its own fintech start-ups.”

In a bid to attract more technology and new-economy companies, the Hong Kong stock exchange has proposed a third board to allow listings by companies with dual-class share structures, which give certain shareholders more voting power than others.

Several stock markets allow such structures, including the New York Stock Exchange and the Nasdaq Stock Market.

Hong Kong lost Alibaba’s listing to New York in 2014, due to its ban on dual-class shares.

Alibaba owns the South China Morning Post.

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