The first restructuring under the new regulations.
Investor Network - Cui Yuechen
Recently, with an announcement from BANK OF TIANJIN (01578.HK), the restructuring plan of Jiexin Consumer Finance was officially finalized.
According to the announcement, this restructuring involves multiple Institutions, including Guangzhou Jingdong Trading Co., Ltd. (hereinafter referred to as "Jingdong Trading"), Online Banking (Peking) Business Service Co., Ltd. (hereinafter referred to as "Online Banking"), China Foreign Economic and Trade REITs Co., Ltd., Tianjin Economic and Technological Development Zone State-Owned Assets Operation Co., Ltd., and Jiexin Group (Home Credit N.V.).
Among them, Jingdong Trading and Online Banking are both subsidiaries of JD.com, with the actual controller being Liu Qiangdong. In this restructuring, Jingdong Trading and Online Banking will jointly invest 3.25 billion yuan to acquire 65% equity of Jiexin Consumer Finance.
At the same time, BANK OF TIANJIN will also participate, investing 0.5 billion yuan to obtain 10% equity. The original Shareholder, Jiexin Group, will see its holdings decrease from 100% to 2%, and its investment amount will be significantly reduced from 7 billion yuan to 0.1 billion yuan.
This also means that this once highly regarded foreign Consumer finance giant will officially change hands to JD.com, turning over a new page.
The industry's first restructuring after the implementation of the new regulations.
On April 18, 2024, the 'Management Measures for Consumer Finance Companies' officially came into effect, marking a new milestone for the Consumer Finance Industry.
The new regulations have significantly raised the industry entry threshold, especially imposing stricter requirements on key indicators such as the asset scale and revenue of main investors, ensuring they can provide sufficient support and guidance for the company. Meanwhile, the new regulations have also increased the minimum registered capital for consumer finance companies from the original 0.3 billion yuan to 1 billion yuan, enhancing the enterprises' ability to withstand risks.
Against this backdrop, the restructuring of Home Credit Consumer Finance became the first merger and acquisition case in the industry after the implementation of the new regulations. According to the restructuring plan, the trade will be conducted by first reducing capital and then increasing capital.
First, the registered capital of Home Credit Consumer Finance will be reduced from the original 7 billion yuan to 5 billion yuan; subsequently, new strategic investors will increase the capital according to their respective investment ratios, restoring the company's total share capital to the level of 5 billion yuan. In this process, two companies under JD.com will invest 2.5 billion yuan and 750 million yuan respectively, collectively holding 65% of the shares, while the original shareholder, Home Credit Group, will reduce its stake to 2%, with its investment amount drastically decreasing from 7 billion yuan to 0.1 billion yuan.
In addition, other newly joined investors, including China Foreign Economic and Trade Trust Co., Ltd., Tianjin Economic and Technological Development Zone State-owned Assets Management Co., Ltd., and BANK OF TIANJIN, will respectively hold 12%, 11%, and 10% of the shares.
Upon completion of the restructuring, JD.com will become the largest shareholder of Home Credit Consumer Finance and obtain a valuable consumer finance license.
It is noteworthy that this restructuring is not only a significant adjustment to the equity structure of Home Credit Consumer Finance but also a reorientation of its future development. In the face of increasingly strict regulatory environments and fierce market competition, how to effectively integrate resources and enhance management efficiency has become a key issue for all participants.
Once the 'King of Consumer Finance' is now heading toward decline.
Public information shows that CreditEase was established in 2010 and is one of the first four pilot companies for consumer finance in the country, also being the first wholly foreign-owned consumer finance company in China.
CreditEase's wholly-owned controlling shareholder is CreditEase Group, which is 100% controlled by PPF Financial Holdings a.s., one of the largest investment and financial groups in Central and Eastern Europe.
In the first few years, CreditEase rapidly rose to prominence in the Chinese consumer finance market thanks to its extensive offline network and strong consumer credit product capabilities. By 2019, CreditEase's asset scale reached 104.5 billion yuan, making it the first consumer finance company to exceed 100 billion in assets. Also, in July of that year, shareholder CreditEase Group submitted an IPO application to the Hong Kong Stock Exchange, but ultimately failed to go public.
However, starting in 2020, CreditEase's operating conditions experienced a sharp decline. According to annual report data, by the end of 2020, CreditEase's total assets had decreased to 65.207 billion yuan, a reduction of 37.62% from the previous year; operating revenue was 11.232 billion yuan, down 35.2% year-on-year, and net income shrank to only 0.136 billion yuan, a year-on-year decline of 88.1%.
In response, CreditEase stated that the decline in profits was mainly due to reduced credit demand caused by the COVID-19 pandemic, leading to a significant contraction in credit business volume. Since then, CreditEase has not disclosed any annual reports.
In the following years, CreditEase almost ceased all new business and focused on the disposal of non-performing assets. By the end of 2023, CreditEase recorded a post-tax net loss of 3.199 billion yuan, and its shareholders' equity was only 0.8029 billion yuan.
Besides poor financial performance, CreditEase also faces many external challenges. For example, since its establishment, it has continually received consumer complaints. As early as 2013, CreditEase was exposed by CCTV for engaging in predatory lending with annual interest rates exceeding 50% for college students and was also suspected of violent debt collection.
In addition, according to data statistics from the Black Cat Complaint platform, the number of complaints against CreditEase has exceeded 0.085 million, with most complaints involving high-interest rates and improper collection practices.
Can JD.com change the landscape of the industry by entering the market?
For JD.com, this investment in Jiexin Consumer Finance not only fills its gap in financial licenses but, more importantly, further expands its financial business territory.
As one of the leading e-commerce platforms in the country, JD.com has a large user base, mature white bar products, and rich consumer scenarios, all of which are essential resources for developing consumer finance business.
Analysts point out that JD.com can utilize Jiexin Consumer Finance's existing offline channels to further improve its financial services network, especially in third and fourth-tier cities and rural areas. Meanwhile, with the customer data and operational experience accumulated by Jiexin Consumer Finance over the years, JD.com can also optimize its credit approval process, enhance risk identification capabilities, and ensure the stable running of its business.
More importantly, the "Internet Company + Bank" combination between JD.com and BANK OF TIANJIN is also the mainstream model in the current shareholder background of consumer finance companies, which is beneficial for Jiexin Consumer Finance to leverage the strengths of its shareholders while ensuring compliance and balancing business development.
On the other hand, JD.com also faces significant challenges. First, how to effectively integrate Jiexin Consumer Finance's existing teams, businesses, and systems are key issues that must be resolved in the future. Second, as competition in the consumer finance market becomes increasingly fierce, facing pressure from other internet giants like Alibaba and Xiaomi, JD.com needs to accelerate product innovation and introduce more differentiated products to attract and retain users.
After the restructuring, JD.com will help Jiexin Consumer Finance out of its predicament while also achieving the expansion of its financial territory in the process, which seems to be a win-win model. Of course, all of this requires time to verify, but in any case, this is a process worth looking forward to, as this restructuring will bring far-reaching impacts for both JD.com and the entire consumer finance industry. (Produced by Thinking Finance)
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