Lufax buyback boosts case for direct listings

China Renaissance Holdings

25/05/2021 02:42

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer Hughes
    HONG KONG, May 25 (Reuters Breakingviews) - Returning
unneeded funds to shareholders is generally a good idea. Doing
so shortly after raising capital in an initial public offering,
however, suggests something is amiss. The decision by $31
billion Chinese financial technology company Lufax  LU.N  to buy
back some the same stock it sold to new investors seven months
ago speaks to equity issuance problems and lifts the case for
direct listings. 
    Ping An Insurance-backed  601318.SS   2318.HK  Lufax, which
specialises in facilitating small business loans, said on Monday
it would repurchase as much as $300 million of shares. They have
been trading at a limp 14 times expected earnings for the coming
year since last October’s New York IPO, despite solid financial
performance and perkier management forecasts. 
    Lufax is only the latest to swiftly reverse capital-market
gears. Boutique investment bank China Renaissance  1911.HK 
announced a share buyback only a month after its messy October
2018 market debut. Chinese microlender Qudian  QD.N  did
something similar.  
    The Lufax case is also curious because its prospectus
suggested that raising money was not even the primary objective.
With $2 billion of cash on hand, Lufax led with the idea that it
wanted a currency to help retain employees and make it easier
for existing backers to exit when ready. That sounds like a
candidate for a direct listing, where the price is determined by
orders to the stock exchange and funds are not typically raised.
Spotify  SPOT.N  and Slack  WORK.N  both tried the cheaper and
quicker approach to useful effect. 
    It’s not a fail-safe option. Website hosting service
Squarespace  SQSP.N , valued at $10 billion in March, lost a
third of its value last week after a direct listing. The format
also could work better for companies with strong brand
recognition since underwriters aren’t doing the introductory
work associated with IPOs. That might have been tricky for
Lufax, whose $2.4 billion stock sale was overshadowed by rival
fintech Ant before its $35 billion deal imploded. 
    As with all things investing, timing is a factor. And
fledgling direct listings are gathering momentum, with U.S.
regulators moving ahead with plans to allow companies to raise
funds with them too. As other companies contemplate options for
going public, it’s worth considering the consequences of the
clumsy turnabout at Lufax.
    Follow @JennHughes13 https://twitter.com/JennHughes13 on
Twitter
    
    CONTEXT NEWS
    - Lufax said on May 24 it plans to spend up to $300 million
buying back its shares, about seven months after its Oct. 30
initial public offering, when it raised $2.4 billion. Senior
executives at the Chinese financial technology company also will
spend personal funds to buy up to a further $5 million of
shares.   
    - For previous columns by the author, Reuters customers can
click on  HUGHES/ 
 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Lufax press release    https://ir.lufaxholding.com/news/news-details/2021/Lufax-Announces-Share-Repurchase-Plan-by-the-Company-and-Senior-Management/default.aspx
Ant’s shadow obscures glowing Lufax results     urn:newsml:reuters.com:*:nL1N2MK02J
BREAKINGVIEWS-Lufax slips softly priced IPO past Ant hullaballoo
    urn:newsml:reuters.com:*:nL4N2HL0H4
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
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 | Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((jennifer.hughes@thomsonreuters.com; Reuters Messaging:
jennifer.hughes.thomsonreuters.com@reuters.net))