Chinese Fintech Firm Lacala Faces Scrutiny Over Proposed Acquisition of Previously DivestedCompanies
SHANGHAI, April 10, 2020 – Chinese fintech company Lacala (300773.SZ) is facing scrutiny from the Shenzhen Stock Exchange (SZSE) overits proposed acquisition of two companies it previously divested before going public. The SZSE is questioning whether the deal constitutes regulatory arbitrage.
Lacala announced on April9th that it would spend 2.116 billion yuan ($300 million) to acquire 100% of Guangzhou Zhongheng and Shenzhen Zhongheng, two related companies. Notably, bothcompanies were previously owned by Lacala before it was listed on the ChiNext board in April 2019.
The SZSE swiftly issued a query letter on April 10th, demanding clarification from Lacala on whetherthe acquisition constitutes regulatory arbitrage. The exchange is particularly concerned about the timing of the deal, given that Lacala divested these companies in late 2016, just before its IPO.
Guangzhou Zhongheng, established in August 2016, primarily engages in internet micro-loanbusiness through its subsidiary Guangzhou Lacala Small Loan. Shenzhen Zhongheng, founded in May 2016, specializes in providing risk control and anti-fraud technology services to banks and trust companies.
The SZSE’s inquiry focuses on several key aspects:
- Regulatory Arbitrage: Theexchange wants to understand if Lacala is attempting to circumvent regulations by acquiring companies it previously divested to meet specific listing requirements.
- Control of Kola Credit: The SZSE is seeking clarity on whether Lacala maintains control over Kola Credit, a credit reporting agency owned by one of the acquired companies.
- Business Transactions: The exchange wants to know if there are any existing business transactions between Lacala and the acquired companies, and if so, the nature and extent of these transactions.
The proposed acquisition has raised concerns among investors and analysts, who are questioning the rationale behind the deal and its potential impact on Lacala’s future performance. Some analysts believe that the acquisition could be a way for Lacala to regain control of its core businesses, which were previously divested to meet listing requirements. Others argue that the deal could be a risky move, given the potential for regulatory scrutiny and the inherent challenges in integrating the acquired companies backinto Lacala’s operations.
Lacala’s stock price plummeted on April 10th, falling by the daily limit of 10%. The company is expected to respond to the SZSE’s inquiry within a specified timeframe.
This situation highlights the increasing scrutiny faced by Chinese fintech companiesas regulators tighten their grip on the industry. The SZSE’s inquiry into Lacala’s proposed acquisition underscores the importance of transparency and accountability in the fintech sector, particularly when it comes to transactions involving previously divested companies.
The outcome of this investigation could have significant implications for Lacala’s future, as well as for other Chinese fintech companies seeking to expand their operations through acquisitions.
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