Banking & Finance

Banking on change

360 Finance invests in Tianjin lender, ahead of Hong Kong listing


Plans to raise fresh capital

One of Wen Jiabao’s parting shots as Chinese prime minister was aimed at the country’s largest state-owned firms. He claimed in 2012 that the SOEs “make profits far too easily” and called for the breaking up of their monopolies. A year later the government gave the green light to private sector investors to set up their own banks (see WiC206) and the first batch of 10 banking licences was given out in 2014 (see WiC230).

But after five years of operations have any of these newcomers been able to challenge the dominance of their state-owned peers?

According to International Finance News, a newspaper run by the People’s Daily, there were 18 private sector banks in operation by the end of last year (with one more still to start) but their combined assets totalled just Rmb881 billion ($12.5 billion), or less than 1% of total banking assets. Tencent-backed WeBank, based in the Qianhai special economic zone in Shenzhen, and MYbank, a Zhejiang-based lender with Alibaba’s Ant Financial as a major shareholder, accounted for nearly half of the group’s total assets.

Many of the newcomers focus on “inclusive finance” by offering banking services to lower-income customers and SMEs locked out of the conventional banking system. As a number of industry commentators put it, this means that they are ‘feeding on the leftovers’ of the larger state-owned banks. Profits can be harder to come by as a result and some of the early investors are already exiting the sector.

Case in point: last week five shareholders of Kincheng Bank agreed to sell their stakes to 360 Finance, the fintech unit of security software firm Qihoo 360. The Rmb1.2 billion deal will see 360 Finance becoming its biggest shareholder.

The Tianjin-based lender has become the first to revamp its shareholder roster, and is now the sixth of the new banks to be backed by an internet firm (Baidu, Xiaomi and Meituan had joined Tencent and Alibaba in backing a challenger bank). Ride hailing firm Didi Chuxing is reportedly considering a similar move, although only Tencent, Alibaba and 360 Finance can count themselves as the biggest shareholders of their respective lenders (all capped at 30%).

The Shanghai Securities News expects more internet giants to join the game and says the trend will soon pose a bigger challenge to conventional lenders. China’s smartphone culture, as well as the fact that so many consumers already depend almost entirely on digital payment, should speed disruption in the sector. But for 360 Finance the investment should also raise its profile at a time when it is seeking a secondary listing in Hong Kong. The company only went public on Nasdaq in December 2018 but like a slew of Chinese firms on US bourses, it has been chasing a dual listing in Hong Kong, after mounting tensions between Beijing and Washington.

Following NetEase’s trading debut last week (see WiC499), e-commerce firm went public on the Hong Kong Stock Exchange on Thursday, with its shares closing up 3.54% from their offer price on the first day of trading.

According to Reuters, 360 Finance is in talk about meeting the requirements of the Hong Kong bourse – one of which is that the entity should have been trading on a recognised market for at least two years. That means it could not expect to IPO in Hong Kong until December at the earliest, unless it can obtain a regulatory exemption.

The company’s parent firm Qihoo 360 left the New York stock exchange in 2016. More recently its founder Zhou Hongyi has been positioning Qihoo as a defender of China’s cyber security. Last month the software firm was also one of 33 Chinese firms and government bodies to be added to a Washington blacklist that limits their access to US technology on national security concerns.

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