Dianrong, one of China’s biggest peer-to-peer lenders, is attempting to raise $100m as it tries to weather a regulatory clampdown which has also prompted it to cut up to 2,000 jobs.
The company is trying to raise the funds from both new investors and existing shareholders, which include Singapore’s GIC; Orix, the Japanese financial services group, and the Asian private equity arm of Standard Chartered.
To reassure the investors, Dianrong co-founder Kevin Guo put $10m of his own money into the company at the end of December, he told the Financial Times. The new capital is designed to help Dianrong to survive until Beijing gives accreditation to a select number of lenders, which investors expect before the end of the year.
In the mean time, Dianrong has started cutting up to 2,000 jobs, about a third of the total, to cut costs.
Dianrong’s fate, like that of the remaining P2P lenders — which connect private lenders and borrowers online — depends largely on Beijing. The government was originally expected to begin registering platforms this month. There is still no information on the criterion or how many firms will receive licences.
“Whether this turnround works is up to the government,” said one potential investor. “It is hard to keep raising capital and growing when the government specifically imposes limits on both the borrowers and the lenders.”
Fitch Ratings said last week that it expected “more platforms to close or consolidate this year” after new licensing rules were proposed. By January, there were about 1,000 P2P lenders, down from about 2,350 in mid-2007, the credit rating agency added, while monthly lending volumes have fallen by 60 per cent.
P2P bulls argue that as long as banks remain reluctant to lend to the smaller enterprises that provide both jobs and consumption that China needs, online marketplace lending has an important role to play.
Dianrong’s two co-founders have solid pedigrees: Mr Guo previously practised law and specialised in intellectual property rights. Soul Htite, a Canadian, helped found California-based Lending Club, the leading US peer-to-peer platform that went public in 2014.
In addition, Dianrong, which was established in 2012, boasts respected investors that include one of the family offices of Jack Ma, Tiger Global, and Hong Kong’s Sun Hung Kai as well as GIC, Orix and Standard Chartered.
As early as 2015, Dianrong was brimming with confidence that it would soon go public; the following year, Mr Htite was talking of a $500m fundraising round even as the listings atmosphere for mainland P2P companies soured.
But the company also grappled with fundamental disagreements about its strategy. Mr Guo long advocated a conservative strategy while in contrast, Mr Htite wanted to build scale quickly as a shortcut to a public listing.
Mr Guo, the legal face of Dianrong, is taking back the reins after a series of internal mis-steps including an aborted merger with Quark Finance, a Chinese consumer finance company, in a partnership that added both to costs and non-performing loans.
Mr Htite dismissed reports about tension between him and Mr Guo around Quark as “fake news”.