Investors will have to wait at least until 2017 to buy Lufax stock as the company delayed its IPO aspirations according to CFO James Zheng. It seems likely that the Chinese peer to peer lending company will try to list on the Hong Kong stock exchange and hopes to be able to do that by 2017.
Valued at approximately $18.5 billion after its latest round of funding in early 2016, Lufax is taking the time to make sure that the company sufficiently grows before its IPO. Additionally, financial technology companies in China are facing increased government regulations after fraud was discovered which could lead to plummeting trust among the public for this type of business model and stock.
If Listed In Hong Kong, You Won’t Be Able To Buy Lufax Stock
The current plan to have Lufax IPO in Hong Kong would mean international investors will not be able to easily buy the stock. Typically, in order to buy Hong Kong stocks you would need to sign up to and have money in a broker that allows you to buy stocks on that exchange (in other words, a Hong Kong stock broker). Unfortunately, none of the US online discount brokers will let you do that. The American exchanges along with some over the counter stocks are the only ones that most online brokers will let you buy.
At some point Lufax may decide to have an ADR which is a way around that but it wouldn’t happen right away. Should there ever be a Lufax ADR available, it would mean investors worldwide could buy the stock because American Depository Receipts are listed on the US exchanges and are traded just like regular stocks.
Difficulties Ahead for Lufax And Peer To Peer Lending
Even though Lufax has plenty of cash and has such a high $18.5 billion valuation, it doesn’t mean there is clear sailing ahead. Lufax has constructed its business model around Lending Club and other peer to peer lenders that operate in the USA. Lending Club (LC) went public in December of 2014 at a price of $15 and in the next few trading days the stock was bid up to almost $28 a share. However, the stock has seen nothing but pain in the months and years since then. Please see the chart of Lending Club’s stock history which shows a steady drop all the way down to just over $5 where it trades in late 2016:
Clearly any investor in LC has been very disappointed and has probably lost money. This shows how difficult the peer to peer lending business model is and how poorly one of Lufax’s “competitors” has performed. Considering the myriad of laws and regulations such a company has to jump through to conduct business, whether it is in China or The United States, peer to peer lending is still a new concept that is fraught with legal challenges and hurdles. Fraud is also a concern which needs to be detected and stopped immediately should it occur, otherwise it can cripple such a company quickly.
Undoubtedly there will be an IPO at some future point but investors should fully understand the business model and risks should they want to buy Lufax stock. The company operates a website that is in Chinese and impossible to understand unless you are fluent in the language. International investors will find it very difficult to find information about the company and its financials in a language they can understand and should be very careful to do extra due diligence before investing in the stock.