Why Ping An’s Blockchain Subsidiary Slashed its IPO Valuation by 70%

OneConnect, the blockchain arm of China’s largest insurance fund, Ping An, announced yet another cut off its expected valuation on the launch of its IPO as shares traded between $9 and $10 USD at opening. The company raised a total of $312 million USD in the IPO on Friday, bringing the total valuation of the company to $3.66 billion – almost half the earlier expected valuation of $7.5 billion USD.

In this article we will discuss the issue pertaining the failed move by SoftBank-backed OneConnect IPO and the reasons that led to the capitulation of the once famed blockchain project.

The 50% capitulation in OneConnect’s value

It has been a long way down for OneConnect, a company that was heavily tipped to raise at least $2 billion in their public offering. The Shenzhen based company had just raised over $650 million in 2017 placing the company at a $7.5 billion USD valuation. However the $2billion dream has diluted to $312 million in reality as investors show caution in blockchain projects.

The capitulation started off in August whereby SoftBank released an estimated $1 billion USD raise during IPO before slashing it down to $500 million in early December. The company announced they will be raising 36 million shares, for $12-$14 USD each totaling to $432 million USD to $$04 million USD. Less than a fortnight later, the IPO was raised offering $9 USD to $10 USD for 31 million shares, raising $312 million in the process.

OneConnect shares remain flat in first day of trading

Ping An launched its blockchain arm, OneConnect, back in 2017 with an aim to build long lasting financial solutions in the industry. However, the company seems to be struggling to prove value to its shareholders as the recent IPO valuation cuts show. The fintech company had also planned to launch their shares on the Hong Kong exchange before switching to the New York exchange.

While the IPO was ‘kind of a disaster’ for OneConnect, the closing price of the shares remained unchanged from the launch. Trading at around $10 USD at launch, OneConnect shares shortly shot up by 10% during the day before plummeting to $10 USD at the close of day.

Why OneConnect’s valuation dropped close to 50% following IPO?

The sharp fall in Ping An’s OneConnect shares is a clear indication that something is not right at the firm or the product itself. While questions are raised on the value proposition offered by OneConnect, bigger problems still persist in regulation and wanting support from major banks.

Lack of value proposition

In an interview with FT, Arun George, an analyst at Global Equity Research, spoke on the possible lack of value proposition by OneConnect given the extended valuation cuts in the past few months. Arun remarked,

“The willingness of shareholders. . . to suffer the humiliation of a massive down round is a red flag. The quick succession of the valuation cuts suggests that OneConnect has likely deep underlying issues.”

While there remained a willingness to buy the shares during the pre-ICO period, OneConnect has slowly turned to

The WeWork effect

It is no lie that WeWork’s exaggerated $47 billion dollar valuation IPO in September this year raised suspicion across the capital raising industry. Adam Neumann stepping down, employees being laid off and a meltdown of the firm generally has made investors less believing, could this be a factor that caused the halving of the IPO valuation of OneConnect?

Well, this will represent yet another lossmaking company that SoftBank’s $97 billion VisionFund has sponsored, joining a list of companies such as WeWork in poor ICO launches.

 

Without a stable project and a scalable value proposition for its user, the shares of OneConnect may continue to suffer on the secondary market in coming days as price remained flat at $10 since launce on New York Stock Exchange.

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