Date
27 May 2017
Value Partners, through Brilliant Star Capital, disposed of its stake in microlending business Vision Credit for a marginal gain after six years of investment. Photo: Visioncredit.com
Value Partners, through Brilliant Star Capital, disposed of its stake in microlending business Vision Credit for a marginal gain after six years of investment. Photo: Visioncredit.com

Why Value Partners failed to ride China’s microlending boom

Value Partners Group (00806.HK) said it will sell its investment holding unit Brilliant Star Capital to Mastermind Capital (00605.HK) for HK$316.5 million (US$40.68 million).

The venture’s core asset is Vision Credit, a microlending business.

The company invested 270 million yuan (US$39.15 million) in the business in 2011, so the company will still be able to book a gain, although quite small, over a six-year period.

Back then, the microlending venture was receiving a lot of attention with analysts saying the market was set to take off.

Many thought that if the firm could borrow at low cost in the Hong Kong market and charge borrowers an interest of, say, 20 percent, the rewards would be huge.

Several other Hong Kong firms such as Man Sang International (0938.HK) jumped on the bandwagon in 2011.

However, things didn’t work out as planned. Last year Brilliant Star’s microlending business posted a net loss of HK$11.7 million. Also, the market has not heard much about Man Sang’s venture after a key partner resigned in 2012.

A number of factors could explain why these Hong Kong firms failed to capture opportunities in the fast-growing market.

Since 2011 Chinese authorities have been tightening regulation over the microlending sector, such as by imposing a cap on interest rates and introducing stringent capital requirements.

Microlending companies are also restricted from raising funds by attracting deposits or borrowing from across the border.

Meanwhile, China’s three internet giants – Baidu, Alibaba and Tencent – have rolled out microlending businesses in recent years.

These tech giants boast not only advanced technology but also an enormous customer base.

As such, they have a definite edge when it comes to attracting customers and properly assessing their creditworthiness.

They also enjoy economies of scale, enabling them to grab the lion’s share of the market.

On the mainland, many small, regional microlending firms have also managed to survive, although quite a few employ shady practices that Hong Kong firms would not want to follow, such as hiring gangsters to collect payments from borrowers.

This article appeared in the Hong Kong Economic Journal on April 27

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Hong Kong Economic Journal columnist

EJI Weekly Newsletter

Please click here to unsubscribe