Newly listed Chinese FinTech companies in the U.S. are struggling on Wall Street, leaving investors with unexpected losses and posing as a setback to other Chinese firms hoping to go public.
According to news from The Wall Street Journal, 16 companies from China have debuted on the New York Stock Exchange or NASDAQ so far in 2017, with 10 trading below their IPO prices. Some have even plunged within weeks of listing.
The poor performances are raising questions about whether some companies made adequate disclosures of their risks when they were raising money, as well as whether investors bought into the hype around the growth prospects of Chinese companies.
“The quality of the businesses were either too early [to go public], untested or just poor,” said Anh Lu, an equities portfolio manager at T. Rowe Price in Hong Kong. “And they were asking for very high valuations on top of that.”
The worst performer has been Qudian Inc., a three-year-old online lender whose shares have slumped 46 percent through Friday since the company raised $900 million in October in one of the larger U.S. IPOs this year.
Chinese companies have accrued a total of $3.7 billion by listing their shares in the U.S. this year, representing about 8 percent of the total U.S. IPO funds raised. Chinese firms have also powered a global surge in IPOs, driven in part by investors who bought into expectations of robust growth in China’s economy.
“The market has been strong, and companies are taking advantage of that to come public, which is why you want to be very selective there and be careful, because you’re probably not getting a bargain,” said Danton Goei, a portfolio manager who oversees about $1 billion in assets in the Davis Global Fund.
But investment banks, including Morgan Stanley, Credit Suisse and Goldman Sachs, have underwritten multiple U.S. IPOs of Chinese companies and actively promoted the FinTech sector.
In fact, a report from Goldman in August detailed how FinTech companies were “reshaping the way Chinese consumers pay, borrow and invest” and predicted significant growth in internet lending.
However, regulators in China recently announced plans to rein in lax lending practices and potentially predatory lending activities, which could hinder growth of many online lenders, potentially causing their steep share declines.
Of course, these new regulations — coupled with the poor performances of the Chinese companies who went public — could now hurt the prospects of other firms looking for an IPO in the U.S.
LexinFintech Holdings Ltd., another Chinese lending platform, last week scaled back its fundraising ambitions. It plans to raise $120 million in an IPO that could price this week, but had initially planned to raise up to $500 million.