Chinese home loan provider CNFinance prices scaled-back US IPO

IPO action on the trading floor of the New York Stock Exchange (NYSE).

CNFinance Holdings Ltd, a Guangzhou-based home equity loan service provider in China, has scaled back its initial public offering (IPO) target in the US from $200 million in July to a mere $48.75 million, according to its amended SEC filing.

The company, in a separate press statement, said it is offering 6.5 million American Depositary Shares (ADS) at $7.50 a piece, the lower range of its initial target of $7.50-$8.50, to bring its total offering size to $48.75 million, assuming the underwriters do not exercise their option to purchase additional ADS.

CNFinance’s ADS have been approved for listing on the New York Stock Exchange and are expected to begin trading on November 7 (New York time) under the ticker symbol “CNF”.

Roth Capital Partners is acting as sole bookrunning manager for the offering and Shenwan Hongyuan Securities (H.K.) Limited is the co-manager for the offering.

CNFinance, which claims to be the second largest home equity loan service provider among non-traditional financial institutions in China, did not specify the reason for the trimmed target but its recent filing showed a decline in its financial performance during the three months through September.

According to the filing, the company’s loan origination volume decreased from Rmb3.6 billion ($520 million) for the three months ended June 30, 2018 to Rmb2.6 billion ($376 million) for the three months ended September 30, 2018, representing a decrease of approximately 27.7 per cent.

Consequentially, the growth in some of its financial performance indicators, such as net income, has also been adversely affected by the lower loan origination volume in the third quarter of 2018. The company’s income decreased by 2.7 per cent from Rmb241.2 million ($34.9 million) in the three months ended June 30, 2018 to Rmb234.9 million ($34 million) in the three months ended September 30, 2018.

The company, founded in 1999, said it plans to use the net proceeds of the offering for working capital and other general corporate purposes. It also intends to hold its net proceeds in short-term, interest-bearing, financial instruments or demand deposits, pending the use of the funds.

The primary target borrower segment of the lender is MSE owners who own real properties in Tier 1 and Tier 2 cities in China. These MSE owners typically have quick cash flow turnover from their business operations with high demand for working capital, CNFinance said.

“Their financing needs are often unpredictable, time-sensitive and frequent. Our target borrowers are underserved by traditional financial institutions. Traditional financial institutions often impose stringent and inflexible loan application requirements designed for large corporations, making it difficult for MSE owners to meet such requirements,” the firm said.

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