August 9, 2019
Wangchun Ye
Chairman and Chief Executive Officer
OneConnect Financial Technology Co., Ltd.
55F, Ping An Financial Center
No 5033 Yitian Road, Futian District
Shenzhen, Guangdong
People's Republic of China
Re: OneConnect Financial Technology Co., Ltd.
Draft Registration Statement on Form F-1
Submitted July 15, 2019
CIK No. 0001780531
Dear Dr. Ye:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form F-1 submitted July 15, 2019
Prospectus Summary, page 1
1. Please revise your prospectus summary to disclose that your directors,
officers and
principal shareholders will continue to have significant control over
the company after this
offering. In addition, describe your significant relationship with Ping
An Group to specify
that Ping An Group is your most important supplier and customer and
principal
shareholder.
2. Please disclose in the prospectus summary that Ping An of China
Securities (Hong Kong)
Company Limited, an underwriter in this offering, is an affiliate of
Ping An Group. Tell
Wangchun Ye
FirstName LastNameWangchun YeCo., Ltd.
OneConnect Financial Technology
Comapany2019
August 9, NameOneConnect Financial Technology Co., Ltd.
August 9, 2019 Page 2
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FirstName LastName
us whether you are required to have a qualified independent
underwriter in accordance
with FINRA Rule 5121 regarding conflicts of interest. Any enhanced
disclosure
regarding conflicts of interest and a qualified independent
underwriter should be
addressed in the risk factor section as well.
Outstanding growth, page 2
3. Please disclose your net loss for each period presented in your
financial statements to
provide more balanced disclosure.
Risk Factors
Ping An Group is our strategic partner..., page 18
4. Disclose the aggregate number of shares that Bo Yu Limited has an
option to purchase
from the shareholders of Yi Chuan Jin Limited.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Operating Metrics, page 76
5. We note your management regularly reviews a number of operating
metrics to evaluate
your business, performance, etc., including number of customers and
net expansion rate,
which are specifically disclosed. Please tell us, and revise
accordingly, what other
operating metrics you regularly review and what consideration you gave
to disclosing
information about those metrics. Refer to guidance in Section III.B of
SEC Release No.
33-8350.
6. Please revise to disclose the number of customers from Ping An Group,
or revise to
clearly explain why these customers are excluded from your total
customer count.
7. Please revise note 3 to your customer count table to disclose the
number of non-paying
basic customers and to explain in more detail why a "significant
majority" of your basic
customers are non-paying customers. Further, disclose what impact or
trends this has or is
reasonably likely to have on your operating results. See Item 5.D of
Form 20-F.
8. Please revise to include the total number of Ping An Group, premium
and basic
customers, as well as total customers, for each of the interim periods
presented in the table
on page 77, and to address any trends impacting your results of
operations. See Item 5.D
of Form 20-F.
9. You disclose that the revenues generated from your Premium Customers
in fiscal year
2018 and the three months ended March 31, 2019 include revenues in
connection with
lending solutions you provided to third-party customers through
contractual arrangement
with Ping An Group. It appears that a greater percentage of your
revenues in 2018 than in
2017 were based on your relationship with Ping An Group either through
third-party
contractual arrangements or direct revenue, and that this trend has
continued into the first
quarter 2019. Please revise your disclosures to explain whether
management anticipates
Wangchun Ye
FirstName LastNameWangchun YeCo., Ltd.
OneConnect Financial Technology
Comapany2019
August 9, NameOneConnect Financial Technology Co., Ltd.
August 9, 2019 Page 3
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FirstName LastName
this trend to continue into future periods. We refer you to Part I,
Item 5D of Form 20-F
and Section III.B of SEC No. Release 33-8350. Finally, please revise
your definition of
Premium Customer to clarify that it includes third party customers to
which you provide
services through contractual arrangements with Ping An Group.
10. We note you disclose the number of products purchased by your premium
customers for
2018 and 2016. Please revise to also provide this information for
2017. In addition,
please revise to provide this information for both your Ping An Group
customers and
basic customers for all periods. Please consider providing this
information in tabular
format.
11. Please revise to provide the net expansion rate for all reported
periods, annual and interim,
and any related trends impacting your results of operations.
12. We note you provide the net expansion rate for total customers
overall, as well as for your
premium customers. Please revise to also provide the net expansion
rate for your Ping An
Group customers and basic customers. Please consider providing this
information in a
tabular format for all periods presented.
Results of Operations
Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
Revenue, page 82
13. Transaction-based revenue increased RMB448.3M million for the three
months ended
March 31, 2019, compared with the same period in the prior year. You
attribute the
increase in revenue to increases in risk management for retail banking
solutions and
business origination services primarily for SME financing and services
solutions. You
similarly describe the reasons for increases in implementation
revenues, which increased
RMB94.3M from period to period. Please revise to quantify the impact
from each of
these items on your revenue. Please also similarly revise your fiscal
year end revenue
disclosures on page 85.
Liquidity and Capital Resources, page 89
14. You disclose here that you have borrowing facilities with three banks.
Please further
disclose the material terms of these borrowing facilities, including
the maturity dates of
the facilities and whether they contain any material financial
covenants. Additionally,
please file the credit facility agreements. See Item 8 of Form F-1 and
Item 601(b)(10) of
Regulation S-K. For additional guidance, consider Section IV of SEC
Release No. 33-
8350.
Business
New Solutions, page 126
15. Please revise this section to clarify that these new solutions have
not yet been launched.
Wangchun Ye
FirstName LastNameWangchun YeCo., Ltd.
OneConnect Financial Technology
Comapany2019
August 9, NameOneConnect Financial Technology Co., Ltd.
August 9, 2019 Page 4
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FirstName LastName
For each new solution, please briefly address the stage of development
of the solution and
the anticipated launch date, if known.
Our Relationship with Ping An Group, page 134
16. You disclose here that you have entered into a Strategic Cooperation
Agreement and a
Technology Service Agreement with Ping An Group. Please tell us
whether you intend to
file these agreements as exhibits. Consider Item 601(b)(10) of
Regulation S-K.
Principal [and Selling] Shareholders, page 161
17. Footnote 1 to the principal shareholders table discloses that the
nominee shareholders of
Rong Chang Limited act upon instructions from a five-person management
committee.
Please revise to identify these individuals and to disclose any
material relationship that
these individuals have with you.
18. Footnote 2 to the principal shareholders table discusses certain call
options granted by the
shareholders of Yi Chuan Jin Limited and Shenzhen Lanxin Enterprise
Management Co.,
Ltd. ("Shenzhen Lanxin"). Please revise here to identify the
shareholders of Yi Chuan Jin
Limited and Shenzhen Lanxin and tell us whether you intend to file the
option agreements
as exhibits.
Related Party Transactions, page 164
19. Several of your directors, including Ms. Sin Yin Tan and Dr. Rui Li,
are executive officers
and/or affiliates of Ping An Group. Please disclose any arrangement or
understanding
with major shareholders pursuant to which any person was selected as a
director. Refer to
Item 4 of Form F-1 and Item 6.A. of Form 20-F.
Consolidated Statements of Comprehensive Income, page F-3
20. We note that you have presented your expenses by function, except for
the amortization of
intangible assets line item, which appears to be presented by the
nature of the expense.
We also note that that the amount reported as Cost of Revenue appears
to be incomplete
because it excludes costs that you are required to incur to be able to
generate revenue,
including depreciation and amortization. Please support you
presentation under IAS 1 or
present all of your expenses by function and present a measure of Cost
of Revenue that is
complete. Please refer to paragraphs 15, 29, 99 and 103 of IAS 1.
Notes to Consolidated Financial Statements
1 General information, recapitalization and basis of presentation
(b) Risks in relation to the VIEs, page F-13
21. Tell us how you have complied with disclosures required by IFRS 12,
paragraphs 13-17,
regarding restrictions and risks relevant to your VIEs, or revise
accordingly.
Wangchun Ye
FirstName LastNameWangchun YeCo., Ltd.
OneConnect Financial Technology
Comapany2019
August 9, NameOneConnect Financial Technology Co., Ltd.
August 9, 2019 Page 5
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2 Summary of significant accounting policies
2.2 Principles of consolidation and equity accounting, page F-17
22. Please revise here to disclose the names and relationships of the
Subsidiaries and
Associates that are shown in the "Corporate Structure" disclosure on
page 68. In addition,
please identify in the disclosure on page 68 which of these entities
represent each type of
entity (i.e., Subsidiaries or Associates).
2.3 Structured Entities, page F-18
23. Please revise to disclose the agent or principal relationship you hold
with each of the PRC
Operating Entities, or structured entities, including the structured
entities' status for each
entity disclosed in the chart on page 68. In your response, please
also tell us how your
disclosures comply with IFRS 12, paragraph 9.
2.20 Revenue recognition, page F-29
24. We note that you combine your implementation services and use of the
perpetual license
into one output, or one performance obligation. Please tell us in
detail, and revise to
address, how you determined these services and the related license are
not distinct and are
highly interrelated such that treatment as one performance obligation
is warranted. Refer
to guidance in IFRS 15, paragraphs 29 and 30, B54 and B55, and BC407.
3 Critical accounting estimates and judgments
(b) Estimation of variable consideration, page F-36
25. We note that you have not recognized any performance based fees
revenue for the fiscal
year ended December 31, 2018 "because it is not highly probable actual
default rates of
the portfolio of the underlying loans would be lower than the
threshold rate," which is the
criteria that allows performance based fees to be earned. Please tell
us and disclose the
factors causing non-recognition of performance fees, and address the
related impact these
factors are reasonably likely to have on your financial statements.
See Item 5.D of Form
20-F.
5 Revenue, page F-48
26. We note you have classified revenue from operation support services as
both point-in-time
and over-time in the table on page F-49. Based on the description of
this revenue stream
as disclosed on page F-33, it would seem that revenue is recorded in a
manner similar to
risk management services which are all recognized at a point-in-time
when the services
are delivered. Please revise to clarify why the timing of these
revenues differs between
point-in-time and over-time.
27. Tell us why you have not disaggregated between the contractual
revenues related to the
guarantee model and non-guarantee model within your Business
Origination services.
Wangchun Ye
OneConnect Financial Technology Co., Ltd.
August 9, 2019
Page 6
Please refer to the accounting guidance in IFRS 15, paragraph 114 in
support of your
presentation.
25 Share-based payments, page F-69
28. We note the fair value of the stock options issued increased from RMB0.52
as of the last
issuance in 2017 to RMB26.00 for the issuance in 2018. Please tell us the
reason(s) for
this significant increase in the fair value and provide related
disclosures accordingly. In
addition, please provide us with the fair value of the underlying
ordinary shares for each
issuance. With regards to your A-Round financing in April 2018 for $7.50
a share, as
disclosed on page 173, tell us how that transaction impacted your
determination of the
November 2018 valuation.
General
29. We note that you have included certain graphics in your prospectus.
Please provide us
with copies of these and any other graphical materials or artwork that
you intend to use in
your prospectus. Upon review of such materials, we may have further
comments. For
guidance, consider Question 101.02 of our Securities Act Forms Compliance
and
Disclosure Interpretations.
30. Please provide us with copies of all written communications, as defined
in Rule 405 under
the Securities Act, that you, or anyone authorized to do so on your
behalf, present to
potential investors in reliance on Section 5(d) of the Securities Act,
whether or not they
retain copies of the communications.
You may contact Brittany Ebbertt, Senior Staff Accountant, at (202)
551-3572 or Craig
Wilson, Senior Assistant Chief Accountant, at (202) 551-3226 if you have
questions regarding
comments on the financial statements and related matters. Please contact
Mitchell Austin, Staff
Attorney, at (202) 551-3574 or Jan Woo, Legal Branch Chief, at (202) 551-3453
with any other
questions.
Sincerely,
FirstName LastNameWangchun Ye Division of Corporation
Finance
Office of Information
Technologies
Comapany NameOneConnect Financial Technology Co., Ltd.
and Services
August 9, 2019 Page 6
cc: Shuang Zhao, Esq.
FirstName LastName