CFO INTERVIEW: 9F Propels Toward Next Chapter After Steady U.S. Launch Despite Market Turmoil
The Chinese financial account platform debuted with fanfare on the Nasdaq Global Market regardless of the tumult in the U.S. stock market this week.
While there is no end in sight to the tensions between Beijing and Washington, Wall Street investors continue to welcome China's best companies. Beijing-based 9F Inc. (Nasdaq: JFU), a tech-oriented digital financial account platform, successfully completed its initial public offering this week, ending with a market capitalization of $1.9 billion.
9F provides loan products, online wealth management products and payment facilitation, all integrated under a single digital financial account. On its platform, called One Card, it facilitates loans to mostly young, financially savvy and underserved borrowers. Capital is provided by individual investors, as well as by institutional funding partners.
9F was the largest independent lending marketplace in China in terms of outstanding loan balance as of December 2018, as reported by Oliver Wyman research.
On Thursday, the company sold 8.9 million American depositary shares at $9.50 each, raising $84.6 million. Upon liftoff, shares soared 45 percent to $13.73 apiece, then settled at $9.58 at close.
JFU gained an additional 4 percent on Friday and ended the week at $9.98 per ADS.
Yanjun Lin, 9F's chief financial officer, said in an interview to CapitalWatch that it sought a U.S. listing primarily to improve its status as a transparent company and provide value to its users and shareholders rather than to raise capital.
Commenting on the stock's early soaring way above IPO price, CFO Lin said, "Given that the stocks plummeted yesterday, it's such a surprise for us today." Stocks plunged Wednesday, with the Dow Jones Industrial Average taking a cut of 800.49 points, or 3 percent, to 2,5479.42, its worst drop this year.
Lin added that he sees the IPO as a "starting point" for 9F. The company plans to continue developing its consumer finance business, strengthen risk management and increase the percentage of funding by institutional investors, a measure taken in response to the changing regulatory environment in China's lending industry.
Further, Lin said 9F will invest in technology to strengthen its services for financial institutions and industry leaders like its client, Shanghai Spring International Travel Service Ltd., as well as push overseas expansion.
"Our international expansion has gone relatively fast," he said. "9F Securities is our online broker in Hong Kong, where we also serve as insurance brokers. We are established in Southeast Asia and have obtained consumer finance licenses in Indonesia and the Philippines."
Diversifying, Solidifying Business Amid Regulatory Changes
Over the past year, China's lending industry has been under pressure from Beijing as regulators sought to reduce debt bubbles, control risks and constrain the dubious, scattered businesses prone to conceal fraud. While many P2P lending platforms have suffered and some, like Ping An-backed Lufax, shifted gears, the strongest survived in a market in dire need of consolidation.
9F noted its efforts to comply with the regulations in the industry and said that it is overperforming the requirements. While it has implemented certain changes, it will continue to operate a P2P business, Lei Liu, 9F's executive president and chief risk officer, told CapitalWatch.
He continued, "In order to comply, we maintain a flat P2P lending level, or even a small decline in that. For the further development of the company, we have offset the losses by introducing institutions. Even if the license for P2P is passed in the future, we will not cut the institutional lending business, and both will be carried out. We are to meet the needs of our customers."
9F also provides third-party insurance protection to investors through its financial partners, among whom are China Taiping and state-owned People's Insurance Company of China Holdings Company (PICC).
To control risks, 9F said it performs a technology-powered assessment when selecting borrowers.
"We have established our own risk management system using technologies such as big data and artificial intelligence," the company said in an official statement. "We have established a comprehensive database of borrower profiles, using our credit scoring model, six dimensions, 357 independent variables and 15 sub-models for analysis."
It also said, "In seconds, we make decisions, implement tiered credit approvals and pricing, assess the credit risk of potential borrowers in the form of a proprietary credit score we call ‘Rainbow Ratings', and refuse to provide matching for borrowers with higher risk levels. We can also train our models through artificial intelligence and machine learning to identify data anomalies that indicate fraud to enhance the accuracy of anti-fraud."
9F's financial partners also carry out risk assessment on the backend, CRO Liu said.
Asked about the scale and the future of the consumer finance market in China, CFO Lin said, "We are playing a solid game."
He stated, "Future growth in the industry will be fueled by more than 70 billion institutional funds, online wealth management funds and international sales. That only reflects the consumer finance section, while sections like technology empowerment and international business also have potential. Southeast Asia has relatively large growth potential. The population is very young."
The financial platform has been in business since 2006, founded by Lei Sun, previously a senior manager at the head office of China Minsheng Bank (HKEX: 1988). 9F's IPO was a matter of long-term consideration and a strategic decision, Lin said.
The company's public offering in New York was secured by five underwriters: Credit Suisse Securities (USA) LLC, Haitong International Securities Co. Ltd., CLSA Ltd., China Investment Securities International Brokerage Ltd. and 9F Primasia Securities Ltd. It was also boosted by subscription from a number of its long-term investors, according to 9F's prospectus. Two of them indicated interest in purchasing an aggregate of up to $35 million and $40 million worth of the ADSs, according to the company's prospectus.
"It took more than a year to prepare for the initial public offering of 9F. We were sweating and fighting with difficulties until the last moment," CFO Lin, who is also chief executive of 9F Primasia, said. "Finally, we made it."
Lin was the one to ring the celebratory bell on the Nasdaq Thursday, marking the liftoff of the company's shares.
(Written by Belinda Zhou. Co-authored by Anna Vodopyanova)