THE US has already seen home-grown peer-to-peer platform Lending Club and China’s Yirendai float on the New York Stock Exchange. Then it emerged last week that Chinese lender Lufax is preparing for an initial public offering in Hong Kong – once again raising the question of when the UK will follow suit.
It is the inevitable next step for the UK’s P2P story as more and more institutional money floods the sector, but so far no platform has announced that it is going public.
“I think there are three main factors slowing down an IPO here in the UK: the impact of Brexit on the equity capital market as a whole; the scandal surrounding Lending Club, which was previously a success story of the industry; and the Financial Conduct Authority (FCA) consultation and authorisation process,” Angus McLean, IP partner at Simmons & Simmons, told Peer-to-Peer Finance News.
“I would be surprised to see any UK IPOs before the platforms are fully authorised.”
The corporate governance scandal surrounding NYSE-listed Lending Club wiped 70 per cent off the company’s market value and subsequently hit P2P-focused funds that had invested in the lender.
While Lending Club hit confidence in the sector, the EU referendum vote hit confidence in London. This has pushed back the likelihood of an IPO here in the near future, according to Sarah Walker, director at KPMG UK.
“I expect we will see the first IPO happening within the next two years,” she said. “I think the timeline is likely to have been pushed back slightly due to companies changing their capital strategies as a result of Brexit.”
All of the major P2P platforms currently have interim authorisation from the FCA and have applied for full permission. Once they have received it they can apply to HMRC for ISA manager status in order to offer the Innovative Finance ISA – the tax-free wrapper around P2P investments.
FCA authorisation and the IFISA give the government’s stamp of approval to the P2P sector. A London listing, with all of the corporate governance and transparency that it brings, could be part of that narrative as the industry goes mainstream.
So which platform would be the first to make the jump? Most money is on Funding Circle.
“We haven’t had the big IPO yet of Funding Circle. And the question is when will we get that big IPO?” said Nicola Horlick, founder of P2P lender Money&Co.
“I think they’re finding it a bit tougher. Their growth figures have slowed in terms of the numbers they’re originating.”
It could be that Funding Circle is finding it tougher, or it could be that it does not need to go to the market in the short term. The company has a London-listed fund to provide liquidity and has securitised its loans – two pretty significant deals for a business of its size.
Of course, it is not just down to the platforms themselves to decide when to float. Many of them have institutional backers who may be looking for an exit. Industry insiders have highlighted the fact that investment funds typically have a five-year life cycle before they want to rake in their returns – which puts a number of other platforms on the IPO favourites list.
It appears inevitable that the UK will see a P2P flotation, the question is when. Between Brexit and the arduous regulatory process, it would be presumptuous to wait with bated breath.