London’s landmark fintech IPO flopped Wednesday, with shares trading sharply below their offer price, in a key test of investor appetite for the sector.
Shares in peer-to-peer lender Funding Circle closed at 365 pence per share ($4.74) on Wednesday, well below the firm’s flotation price of 440 pence. Shares had earlier fallen as low as 335 pence, a more than 20% discount to the IPO.
Funding Circle’s debut came on a gloomy day for London’s IPO market as luxury car manufacturer Aston Martin fell on its first day of conditional trading. The car maker made famous by the James Bond franchise priced at the lower end of its range at 1,900 pence each, and fell nearly 5% Wednesday.
Employees work at the Funding Circle headquarters in London, U.K. Photo: Simon Dawson/Bloomberg News
With its £1.5 billion flotation, Funding Circle became the first peer-to-peer lender to go public in the U.K., following the rapid expansion of a sector which allows investors to directly lend money to small- and medium-size businesses.
The company originates funding to growing businesses, and has facilitated loans worth more than £5 billion to 51,000 businesses globally.
More than two-thirds of its loans have been originated in the U.K. The company launched in the U.S. in October 2013 and also has operations in Germany and the Netherlands.
The company said it has raised more than £250 million of equity capital since 2010, from backers including Accel Partners, Baillie Gifford and BlackRock.
Funding Circle’s slow start is the first test for investor appetite around fintech firms since Dutch payment technology company Adyen soared in its stock-market debut in Amsterdam in June.
Funding Circle’s IPO hit issues soon after it announced flotation plans in September. It narrowed its IPO range ahead of the debut, having originally priced a range between 420 and 530 pence per share.
Russ Mould, investment director at stockbroker AJ Bell, said investors are approaching any form of credit financing with “eyes wide open” as interest rates rise and following issues with some listed lenders in the U.S.
Shares in U.S. firm LendingClub have fallen sharply since its flotation under the weight of a sales practice scandal that resulted in the firing of its founder and chief executive, while New York-based small-business lending firm On Deck Capital’s shares are currently trading at around a third of the price of its December 2014 IPO.
As well as the possible headwind of rising interest rates, which could chip away at investor interest in more risky investments, some analysts have also questioned how peer-to-peer lenders may perform in a future economic downturn. Still, Funding Circle said in its IPO prospectus that in its own stress tests showed returns for investors would remain positive even in an extreme economic downturn comparable with the 2008 financial crash.
Investor reaction to the IPO is a blow to London’s hopes for establishing itself as a market for high-profile technology floats, and comes after the U.K. capital missed out on the float of homegrown luxury online shopping company Farfetch, which announced it would pursue a New York listing in August.
At the time of the Funding Circle’s listing, the London Stock Exchange hailed the company’s decision to list in London as confirming the city as a “leading international financial center for raising capital for global fintech businesses.”
—Adam Clark contributed to this article.
Write to Philip Georgiadis at [email protected]