Chinese P2P firm FinVolution taps HSBC for potential take-private deal: sources

HONG KONG, March 13 (Reuters) - China’s oldest peer-to-peer (P2P) lending company FinVolution Group has asked HSBC to seek out potential investors interested in taking the U.S.-listed firm private, two people with direct knowledge of the discussions said.

The search comes as Chinese regulators continue a crack down on the once-booming industry that has been plagued with fraud and scandals. Only 427 P2P firms were still operating by the end of October, down from 6,000 at their 2015 peak, according to official data.

Shares in FinVolution, formerly known as PPDAI Group, have dropped steadily since its November 2017 debut in New York, falling from $13 to just $1.51 on Thursday and leaving it with a market capitalisation of $463 million.

Any take-private deal is at an extremely early stage and HSBC Group Holdings PLC has not been officially mandated on the transaction, cautioned the people, who declined to be named as the information is confidential.

Company founder and co-Chief Executive Cliff Zhang would want to retain a small stake after a deal, said one of them.

FinVolution and Zhang did not respond to requests for comment. HSBC declined to comment.

P2P platforms gather funds from retail investors and loan the money to small corporate and individual borrowers, promising high returns.

China’s P2P industry was once seen as an important credit mechanism that helped provide alternative sources of funding for small borrowers, who are often denied credit by banks and other mainstream financial institutions.

But since late 2015 the P2P business has been rocked by pyramid-scheme scandals and absent bosses, sparking public anger as well as a broader government crackdown.

China said in November that all P2P lenders must become small loan providers within two years.

PPDai changed its name to FinVolution in the same month and has been seeking licences in China for consumer lending or online microlending. It has been shifting business from individual lending to institutional lending and has been assisting traditional banks to find consumer borrowers.

The company’s net profit for the first three quarters of 2019, reached $287.7 million, up 11% year-on-year, however the third quarter saw a 7.9% decrease from the same period in 2018.

Credit Suisse analysts estimated its net profit would drop 6% in 2019 and 24% in 2020 in a January research report.

Its financial health, especially the business of assisting lending, has been hurt by the coronavirus outbreak in China since January that has infected over 80,000 people and claimed over 3,000 lives in the country, according to a separate person familiar with the company’s operations.

Businesses and public services nationwide were forced to shut down or operate at reduced hours as the country sought to contain infections. (Reporting by Julie Zhu and Kane Wu in Hong Kong; Additional reporting by Cheng Leng in Beijing; Editing by Jennifer Hughes and Stephen Coates)