Opinion | Huirong IPO prospectus should give potential investors pause for thought
Rollover of debt comprising 16pc of loan book, sale of defaulted loans to third parties at par and convoluted corporate structure raise questions
Lending to small business is on the lips of every mainland banker and official nowadays.
And now here comes China Huirong Financial with the first public offering by one of the country's pawnshops. Should one jump on the wagon?
It's certainly not for the faint-hearted, judging from the operations of the industry revealed by its prospectus.
To most of us, pawnshops are where you get some urgently needed cash by depositing your diamond ring or Rolex watch. But that's not how they work on the mainland.
You can borrow big bucks with your apartment or even equity interest. Of Huirong's 746 million yuan (HK$943.7 million) in lending, 54 per cent is guaranteed by real estate and 30 per cent by shareholdings, the prospectus says.
In short, pawnshops up north are mini banks that ask for less paper, lend faster and charge more. Huirong charged an average annualised interest of 33.66 per cent, plus an administration fee, in the first half of this year.
