Pay cut

Luo: may not get paid for a while

Taking a $1 salary is a bold move by a boss. The practice has its provenance in wartime, when prominent executives in the US offered to serve their government for a token salary of just $1 per year (plus necessary expenses).

Thanks largely to Steve Jobs, who in 1997 signalled his commitment to turning around a then struggling Apple by tying his remuneration to the company’s stock rather than its payroll, the $1 club has got bigger since then. Alphabet’s Larry Page, Facebook’s Mark Zuckerberg, Oracle’s Larry Ellison and Tesla’s Elon Musk, are among those who take base salaries of $1 or less.

This society might need to open a chapter in China too, with the country’s thriving tech scene aping the $1 or less salary trend. These includes JD.com’s Liu Qiangdong and lately, Luo Min, the founder of online lender Qudian.

“From 1 January 2018, I will not receive any salary or bonus until Qudian Inc’s market capitalisation reaches $100 billion,” wrote the 35 year-old CEO in a WeChat post on March 12. “Imagine we will have offices across dozens of countries across the globe in a few years,” added Luo, pointing to the expansion that would see that market value goal reached. “My dream has just begun after 13 years in my business venture.”

His pledge is an ambitious one, not least because among Chinese tech companies only Alibaba and Tencent have so far hit that mark. The target requires Luo to grow Qudian’s share price a colossal 22 times from its current level.

Backed by Alibaba’s affiliate Ant Financial (which owns 12%), the Beijing-based lender went public in the US last October with its share price closing 21.6% higher on the first trading day (see WiC385). But soon afterwards its stock took a beating from a slew of directives introduced by financial regulators to rein in the loosely regulated online lending market.

The new disciplinary measures included regular checks on micro-lenders’ underwriting policies and funding sources as well as a ban on lending to those without an income. Moreover, online lending firms like Qudian were also prevented from selling asset-backed securities (ABS) that are stuffed with student loans or other uncollateralised lending.

Tellingly, the issuance of ABS in China plunged by 80% in December versus their peak levels in October (Ant Financial was the biggest issuer prior to the restrictions – it has accumulated $95 billion of online-generated consumer loans).

“The constraints imposed by the new regulations on both the types of loans and the funding sources of lenders will curb the availability of consumer finance,” Moody’s said in a report on January 22.

The knock on impact of all these new restrictions is reflected in Qudian’s fourth-quarter results. Its provision for loan principal and various receivables more than quadrupled to Rmb337.8 million ($51.9 million) as its loan delinquency rate climbed. As a result, its net income fell 17% from the previous quarter to Rmb540.1 million.

Having previously relied on uncollateralised loans for over 80% of its income (one of the main markets being students), Qudian has been shifting some of its focus to auto finance. It started with providing leasing solutions to budget car buyers under a programme called “Dabai Auto”. Within two months it had already established 175 showrooms to promote the initiative offline. Additionally Rmb100 million was also pledged for an online advertising campaign on a popular livestreaming platform operated by Inke.

But many have qualms about Qudian’s transition into this competitive sector. Tencent-backed Yixin Group, which went public in Hong Kong last year, had an 18% market share in China’s online auto financing segment.

“We believe that it will take [Qudian] a good couple of years to see profitability in its auto financing business, if at all,” said Li Junheng, founder of New York-based equity research firm JL Warren Capital. She took this cue from Shanghai-based Yixin, which saw its net loss widen to Rmb18.3 billion last year as operating expenses more than tripled.

Meanwhile Lufax, the big internet-based P2P and wealth management platform this week delayed its $5 billion IPO, reports the Financial Times. Lufax, it says, is waiting for the regulators to give out operating licences in the online lending sector, with analysts speculating the first batch won’t be granted till next month at the earliest.

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