United States securities and exchange commission logo
August 24, 2020
Gregory Dean Gibb
Director and Chief Executive Officer
Lufax Holding Ltd.
No. 1333 Lujiazui Ring Road 15/F
Pudong New District, Shanghai
People s Republic of China
Re: Lufax Holding Ltd.
Draft Registration
Statement on Form F-1
Submitted July 28,
2020
CIK No. 0001816007
Dear Mr. Gibb:
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 28, 2020
Prospectus Summary, page 1
1. Please define terms at
first use. For example purposes only, please define the terms "non-
traditional financial
service providers," "TechFin," "B2C," and "VIP customers" at first
use and revise to
explain the differences between "capital-light" and "asset-light." In
addition, we note your
disclosure that you "served 44.0 million registered users" as of
December 31, 2019.
Please revise to define the term "registered user" to provide further
context for this
metric, including whether the metric requires any historical activity level,
includes inactive
accounts, etc.
Gregory Dean Gibb
Lufax Holding Ltd.
August 24, 2020
Page 2
2. We note your disclosure on page 1 of the Summary, and on pages 92 and
140, that
according to Oliver Wyman you are ranked number three among
non-traditional financial
service providers in China based on total online wealth management
client assets. Please
revise to clarify how "total online wealth management client assets"
is determined.
Risk Factors
If our credit assessment and risk management model is flawed or ineffective...,
page 24
3. Please revise to clarify whether you are subject to any contractual
obligations to your
funding or credit enhancement partners if you inaccurately assess the
creditworthiness of a
particular borrower. If applicable and to the extent material, please
revise to discuss any
liabilities that you have incurred in the past as a result of the
same.
4. As a related matter, on page 25 you disclose that you are unable to
monitor whether a
prospective borrower has obtained loans through other retail credit
facilitation
platforms, creating the risk that a borrower may utilize your credit
products to pay off
loans from other sources. We also note your disclosure in the
penultimate paragraph on
page 160 that your risk-based pricing and loan sizing models take into
account,
respectively, the borrower's debt to income ratio and indebtedness
information, among
others. If applicable and to the extent material, please describe any
extent to which your
business has been negatively impacted by such borrower activity.
Any failure by our consolidated affiliated entities or their shareholders to
perform their
obligations..., page 49
5. We note your disclosure that your contractual agreements are governed
by PRC laws and
provide for the resolution of disputes through arbitration in China.
Please revise to clarify
whether such arbitration provisions apply to claims under the U.S.
federal securities laws.
The voting rights of holders of ADSs are limited by the terms of the deposit
agreement..., page
73
6. We note this risk factor describes the voting rights associated with
the ADSs. Please
revise to make clear that, as discussed on page 239, under Cayman law
and in your
organizational documents, you are not required to hold an annual
general meeting for
shareholders.
Special Note Regarding Forward-Looking Statements and Industry Data, page 75
7. We note your disclosure that investors should not to place undue
reliance on forward-
looking statements. Please note that you are responsible for the entire
content of the
registration statement and you may not use language that could be
interpreted as a
FirstName LastNameGregory Dean Gibb
disclaimer of the information contained in the filing. Please revise
this statement to
Comapany NameLufax
eliminate Holding Ltd.
any implication that investors are not entitled to rely on
the information included
Augustin24,
your registration
2020 Page 2 statement.
FirstName LastName
Gregory Dean Gibb
FirstName LastNameGregory Dean Gibb
Lufax Holding Ltd.
Comapany
August 24, NameLufax
2020 Holding Ltd.
August
Page 3 24, 2020 Page 3
FirstName LastName
Selected Consolidated Financial and Operating Data, page 90
8. We note your presentation of pro forma earnings per share ("EPS")
giving effect to the
automatic conversion of all of the outstanding Class B ordinary shares
and Class C
ordinary shares into Class A ordinary shares, which has a positive
impact compared to the
historical EPS. Please revise to provide more transparent disclosure
into the qualitative
and quantitative adjustments being made in this pro forma presentation
to both the
numerator and denominator of the pro forma EPS calculation.
On- and Off-Balance Sheet Treatment of Loans and Risk Exposure, page 95
9. We note your disclosure on page 96 that the Group consolidates loans
under the trust
funding model under IFRS 10. Please tell us and clarify, with
reference to authoritative
literature, whether you consolidate only the loans and related net
interest income or if you
consolidate the entire trust plan, including all assets, liabilities,
revenues and expenses of
the trust.
10. Please provide us with more details of the ownership and equity
structure of the trust
plans, including whether the Group has any equity ownership in the
trust plans. In
addition, given that the loans in the trust plans are funded by third
parties, tell us and
explain whether you allocate the net profit/(loss) of the consolidated
trust plans or net
interest income from those loans to non-controlling interests.
11. Please tell us and revise to quantify the amount of loan facilitation
and post-origination
service fees earned from consolidated trust plans during each
financial statement period
presented. In addition, tell us whether you consider the consolidated
trust plans to be
related parties.
Key Operating Metrics, page 96
12. We note your disclosure throughout the filing (e.g., pages 105 and
106) that the loans
have tenors as long as 36 months. We also note your disclosure of the
outstanding
balances as of December 31, 2017, 2018 and 2019 and volume of loans
facilitated during
2017, 2018 and 2019. Please revise to disclose the weighted average
loan tenor during
each period. In addition, tell us and disclose if and how fee rates
vary by tenor.
Key Components of Our Results of Operations
Retail credit facilitation service fees, page 97
13. We note your table on page 98 setting forth the retail facilitation
service fees that are
expected to arise from the remaining performance of long-term
contracts for your retail
credit facilitation service as of December 31, 2019. Please confirm
that these only
represent post-origination service fees or if they also include any
other fees. In addition,
provide a table showing the comparable expected loan maturity by year
of the outstanding
on- and off-balance sheet loans facilitated on your platform that
correlates to these
expected service fees.
Gregory Dean Gibb
Lufax Holding Ltd.
August 24, 2020
Page 4
Wealth Management transaction and service fee, page 98
14. Please revise to discuss the transaction and service fee structures
for both the legacy and
current wealth management products and how the cessation of offering
B2C products and
peer-to-peer products will impact these types of revenues trends
moving forward.
Other Income, page 100
15. In regard to the account management service fees which represent
service fees charged to
credit enhancement partners for reminder services provided to them for
loans facilitated
by company that are covered by their credit enhancement services,
address whether these
services are included in the post facilitation services provided or if
these are services
provided outside of those services.
Sales and marketing expenses, page 100
16. In regard to the borrower acquisition expenses and investor
acquisition and retention
expenses, please revise, for each period presented, to provide a
breakdown between costs
paid to sales employees and costs paid to third party channels for
borrower acquisition
activities and costs incurred for the member referral channel and the
online direct
marketing channel for investor acquisition and retention expenses,
discussing the trends.
Results of Operations, page 103
17. Please revise to discuss the revenues generated from the international
activities given the
expansion in recent periods as noted in the risk factor on page 32.
Retail credit facilitation service fees, page 105
18. We note that the loan facilitation service fees increased by 17.1%
from 2018 to 2019. We
also note that you attributed this growth due to a 37.2% increase in
the volume of new off-
balance sheet loans which was offset by product mix changes in 2019.
Please revise to
include more fulsome discussion of those product mix changes,
including specific
weighted average pricing and volume information by product during the
2018 and 2019
periods being compared.
Net Interest Income, page 105
19. We note your discussion of changes in net interest income by
consolidated trust plans and
microloans during the periods presented. Please revise to discuss
changes in the gross
interest income and interest expense components, including a discussion
of the weighted
FirstName LastNameGregory Dean Gibb
average loan balance and weighted average interest rate for each
component during the
Comapany NameLufax
periods. In your Holding
response,Ltd.
address why interest expense from your
microloans is smaller
Augustas24,a percentage
2020 Page 4of interest income during 2019 compared to 2018 and
2017.
FirstName LastName
Gregory Dean Gibb
FirstName LastNameGregory Dean Gibb
Lufax Holding Ltd.
Comapany
August 24, NameLufax
2020 Holding Ltd.
August
Page 5 24, 2020 Page 5
FirstName LastName
Credit Risk, page 116
20. Please revise to disclose the names of the external insurance
companies which provide the
credit insurance as well as the exposure amounts covered by each
individual company as
of each period end presented. Further, a discussion of each individual
entity s ability to
meet their obligation under the credit enhancement agreements should
be provided and
which will enable the company to reduce their on-balance sheet credit
risk exposure.
Business
Retail Credit Facilitation, page 151
21. Please revise to address the following as it relates to the
utilization of the third party credit
enhancement for the on-balance sheet credit exposure:
Describe the claims process with the third party credit
enhancement provider,
indicating how often claims are made, payments are received, how
these payments
are considered in the determination of the allowance for credit
losses, and how the
payment amounts received are reflected in the statement of cash
flows.
Revise to provide a rollforward which identifies at the beginning
of each period, the
related receivable amounts, claims made during the period, claims
paid and ending
receivable amounts for loans facilitated and consolidated.
Revise to indicate how the availability of a credit enhancement
impacts the
delinquent collection procedures as well as the related charge-off
policies.
Our Loan Products, page 153
22. In regard to the secured loans outstanding, please revise for each
period presented, to
identify the loans which have fixed installments and the loans which
have balloon
payments. For the loans with balloon payments please indicate the
impact on revenue
recognition.
Credit Assessment, page 160
23. Please describe in greater detail any minimum criteria that borrowers
must meet under
your three key models for credit assessment, as applicable.
Risk Management for Retail Credit, page 164
24. Please revise to disclose the balance of loans past due 30 and past
due 90 days for each of
the periods presented for both secured and unsecured loans.
25. Please revise to provide disclosure to define the risk levels G1-G8
utilized in evaluating
New General-Unsecured Loans.
Wealth Management
Our Platform Investors, page 169
26. We note that your wealth management platform serves Chinese middle
class and affluent
Gregory Dean Gibb
FirstName LastNameGregory Dean Gibb
Lufax Holding Ltd.
Comapany
August 24, NameLufax
2020 Holding Ltd.
August
Page 6 24, 2020 Page 6
FirstName LastName
investors. Please tell us whether investors located in the United
States may invest on your
platform. In particular, address whether a Chinese investor
transiently visiting the United
States would be prohibited from participating in wealth management
transactions on your
platform.
Management, page 217
27. Please provide the service contract disclosure or appropriate negative
statement required
by Item 6.C.2 of Form 20-F.
Principal [and Selling] Shareholders, page 227
28. Please state whether the major shareholders have different voting
rights, or an appropriate
negative statement. See Item 7.A.(1)(c) of Form 20-F.
Governing Law/Waiver of Jury Trial, page 259
29. We note your disclosure regarding the waiver of jury trial provision.
Please revise your
disclosure to:
clarify whether this provision applies to claims made under the
federal securities laws
and also ensure that the deposit agreement clarifies its
applicability; and
include a risk factor discussing any material risks to investors
related thereto,
including the possibility of less favorable outcomes, uncertainty
regarding its
enforceability, the potential for increased costs to bring a
claim, whether it may
discourage or limit suits against you or the depositary and
whether the provision
applies to purchasers in secondary transactions.
To the extent this provision applies to federal securities law claims,
please ensure that
both your disclosure and deposit agreement state that by agreeing to
such provision,
investors will not be deemed to have waived the company s compliance
with the federal
securities laws and the rules and regulations thereunder.
Index to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income, page F-3
30. We note that net interest income is presented as a component of your
total operating
income; however, the credit impairment losses on those loans
generating the net interest
income are not presented as a component of total operating income or
expenses. Please
tell us, with reference to authoritative literature, why you believe
it is appropriate to
reflect the credit impairment losses as a component of other expenses,
rather than total
income or total operating expenses.
31. We note that losses on loans to customers and other related expenses
are classified within
asset impairment expenses prior to adoption of IFRS 9 and classified
within credit
impairment losses subsequent to adoption of IFRS 9. Given the similar
nature of the
expense types as losses on loan despite different accounting standards
in place, please tell
Gregory Dean Gibb
Lufax Holding Ltd.
August 24, 2020
Page 7
us, with reference to authoritative literature, why you do not believe
it would be
appropriate to present the losses on loans to customers and other
related expenses as credit
related expenses during all periods.
Consolidated Statements of Financial Position, page F-5
32. We note your inclusion of a consolidated statement of financial
position as of January 1,
2017; however, this period is not referenced in the auditor opinion on
page F-2. Please
provide us with your basis for inclusion of the January 1, 2017
statement of financial
position without a related reference to it in the auditor opinion.
Revise to clarify
accordingly.
Notes to the Consolidated Financial Statements
4.1.1. Market Risk, page F-49
33. We note your table on page F-50 showing overdue loans to customers as
of December 31,
2019 in the amount of RMB 6,106,786. Please provide additional clarity
as to the length
of time these loans have been past due, the amount of reserves
relating to these loans and
whether you continue to accrue post-origination service fees on these
loans. In addition,
tell us which stage these loans are classified in your table on page
F-60 and why.
14. Finance Costs, page F-73
34. We note that you classify interest expense on borrowings and bank
interest income as
finance costs. Please tell us, with reference to authoritative
literature, why you believe it
is appropriate to classify these as finance costs rather than as
components of net interest
income.
21. Accounts and other receivables and contract assets, page F-82
35. We note your disclosure on page F-31 that accounts receivables related
to retail credit
facilitation business and the related allowance are written off when
they
become delinquent for 180 days or more. Please reconcile this
statement with the tables
showing receivables arising from default guarantee payments in the
amounts of RMB
873,872 and RMB 1,070,072 as being 181 or more days past due as of
December 31, 2019
and 2018, respectively. To the extent that you have a different
write-off policy for these
receivables, revise to clarify accordingly.
22. Loans to customers, page F-84
FirstName LastNameGregory Dean Gibb
36. Please tell us and revise to disclose whether you have modified the
terms of any loans or
Comapany NameLufax
granted Holding
a concession Ltd.
to customers facing financial hardship during
each period presented.
AugustIn24,addition, tell 7us and revise to disclose how you accounted for
those modifications.
2020 Page
FirstName LastName
Gregory Dean Gibb
FirstName LastNameGregory Dean Gibb
Lufax Holding Ltd.
Comapany
August 24, NameLufax
2020 Holding Ltd.
August
Page 8 24, 2020 Page 8
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Exhibits
37. Please tell us what consideration you have given to filing the
following documents as
exhibits to the registration statement:
any agreements that memorialize your funding arrangements with
the three trust
companies that you reference on page 162; and
any agreements entered into between the company and Ping An P&C
regarding its
provision of credit enhancement for the "overwhelming majority of
the outstanding
balance of loans" you had facilitated as of December 31, 2019, as
disclosed on page
164.
Refer to Item 601(b)(10) of Regulation S-K.
General
38. We note that a significant portion of your disclosure includes
information provided by
Oliver Wyman's commissioned report. Please indicate whether you or any
of your related
parties have any connection with Oliver Wyman. In addition, please
file the report as an
exhibit to this registration statement or provide us with your
analysis supporting your
determination that you are not required to do so. Please refer to Rule
408(a) of Regulation
C.
You may contact Robert Klein, Staff Accountant, at (202) 551-3847 or
Marc Thomas,
Staff Accountant, at (202) 551-3452 if you have questions regarding comments on
the financial
statements and related matters. Please contact David Lin, Staff Attorney, at
(202) 551-3552 or
Sandra Hunter Berkheimer, Legal Branch Chief, at (202) 551-3758 with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Finance