Days after its splashy US IPO, Chinese online loan provider Qudian is undergoing a major crisis as local media has begun questioning the sustainability, validity and morality of their business.
Born out of student-based Qufenqi, Qudian first grew by offering small loans to colleges students to capitalize on the rising spending power of China’s younger generations. At the peak of the student micro-loan trend, the firm received investment of Alibaba’s financial affiliate Ant Financial. This October, the red-hot Chinese fintech concept drew strong demand for the company to price the fourth-largest US IPO this year.
However, local media’s queries have cast a shade on their prospects of the company. The criticisms are mainly aimed at the legitimacy of their business. As a major player in the student micro-loan sector, Qudian claims to have suspended student-targeted loans in November 2015 as the state has issued a ban on online loans to college students following public outrage over exorbitant rates, porn for payment, and various financial scams.
According to the company’s IPO prospectus, Qudian’ total revenues increased from RMB 24.1 million 2014 to RMB235.0 million in 2015. Total revenues jumped 514% to RMB 1.4 billion in 2016 and further surged 393.3% from RMB 371.6 million in the six months ending June 30, 2016, to RMB 1.8 billion in the same period in 2017. Qudian’s net losses were RMB 233.2 million in 2015. It turned to profitability in 2016 with a net income of RMB 576.7 million in 2016, while in the first half of this year alone it has recorded a net income of RMB 973.7 million.
It’s interesting to note that the company’s performance was unaffected since 2016, even after they gone through a huge shift in their core business. The firm described its target users in its prospectus as “They are young, mobile-active consumers who need access to small credit for their discretionary spending but are underserved by traditional financial institutions due to their lack of traditional credit data and the operational inefficiency of traditional financial institutions.” and “approximately 90.8% of active borrowers are between 18 and 35 years of age.” This is kind of a roundabout way of saying students, according to the PingWest report.
In addition, the company’s excessive reliance on Alipay for acquiring users, fund management and risk control also raised doubt of its sustainability and business independence as a listed company.
The firm is at a critical point, but company CEO Luo Min’s response to the criticism only made the case worse. When being asked whether they will coerce users to borrow from relatives and other platforms whey they fail to pay back the loans, Luo’s answered “If the debts are overdue, that’s a bad debt for us. In this case, we won’t do anything to push them, not even a phone call. If you can’t pay, we will just give it as a welfare. That’s all.”
Given the circumstances, even a charity move of the company was translated as an attempt to white-wash the company. Qudian’s CEO Luo Min donated RMB 1 billion worth of shares to set up a charity fund last week.
Chinese fintech IPO spree
Despite the buzz, Qudian’s IPO marks a new US IPO wave of Chinese fintech companies. In addition to Qudian, several Chinese online lending companies, such as PPDAI, Hexindai, and Rong360 also filed with SEC for a US IPO. More players like Dianrong, Lexin Fintech are rumored to be following suit.
As a major investor, Ant Financial holds a 12.5% stake Qudian. Given its relationship with Ant Financial, Qudian’s IPO may also test water for the listing of Ant Financial, which has also developed its own micro-loan services.
From the perspective of development circles, China’s fintech is entering a maturity period where capital is seeking exits and companies are looking for IPOs.