F-1 1 a2236687zf-1.htm F-1

Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS 2

Table of Contents

As filed with the Securities and Exchange Commission on September 28, 2018

Registration Statement No. 333-            


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



SAMOYED HOLDING LIMITED
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  6199
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

902/903, B4, Kexing Science Park
No. 15 Keyuan Road, Science and Technology Park
Nanshan District, Shenzhen
People's Republic of China
+86 755 8695 7589

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Cogency Global lnc.
10 East 40th Street, 10th Floor
New York, N.Y. 10016, United States
(800) 221-0102

(Name, address, including zip code, and telephone number, including
area code, of agent for service)



Copies to:

Stephanie Tang, Esq.
Shearman & Sterling LLP
12/F, Gloucester Tower
The Landmark
15 Queen's Road Central
Central, Hong Kong
+852-2978-8000

 

Chris K.H. Lin, Esq.
Daniel Fertig, Esq.
Simpson Thacher & Bartlett LLP
35th Floor, ICBC Tower
3 Garden Road
Central, Hong Kong
+852-2514-7600



Approximate date of commencement of proposed sale to the public:
as soon as practicable after the effective date of this registration statement.

            If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

            If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ý

            If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. o



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price(2)(3)

  Amount of
registration fee

 

Class A ordinary shares, par value $0.00001 per share(1)

  $80,000,000   $9,960

 

(1)
American depositary shares issuable upon deposit of Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents            Class A ordinary shares.

(2)
Includes            Class A ordinary shares that are issuable upon the exercise of the underwriter's over-allotment option. Also includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

   


The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                        , 2018

American Depositary Shares

LOGO

Samoyed Holding Limited

Representing              Class A Ordinary Shares



Samoyed Holding Limited is offering              American depositary shares, or ADSs. Each ADS represents               Class A ordinary shares, par value US$0.00001 per share.

This is our initial public offering and no public market currently exists for our ADSs or Class A ordinary shares. We anticipate the initial public offering price of our ADSs will be between US$              and US$              per ADS. We will apply to list the ADSs on the New York Stock Exchange under the symbol "SMY."

We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements. Upon the completion of this offering, we will be a "controlled company" as defined in New York Stock Exchange Listed Company Manual.

Investing in the ADSs involves risks. See "Risk Factors" beginning on page 21.



PRICE US$                             PER ADS



 
 
Price to
public
 
Underwriting
discounts and
commissions
 
Proceeds
before
expenses
to company

Per ADS

  US$   US$   US$

Total

  US$   US$   US$

We have granted the underwriters the right to purchase up to              additional ADSs to cover over-allotments within 30 days after the date of this prospectus.

Upon the completion of this offering,              Class A ordinary shares and              Class B ordinary shares will be issued and outstanding. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to one vote. Each Class B ordinary share will be entitled to ten votes and will be convertible into one Class A ordinary share. Mr. Jianming Lin, our Chairman of the Board, and Mr. Debin Tang, our Chief Executive Officer, will together beneficially own an aggregate of 98,336,606 Class A ordinary shares and all the Class B ordinary shares of our company then issued and outstanding, representing         % of our aggregate voting power, assuming no exercise by the underwriters of their option to purchase additional ADSs.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs to purchasers on                       , 2018.



MORGAN STANLEY   DEUTSCHE BANK SECURITIES   CICC

   

Prospectus dated                       , 2018.


Table of Contents

GRAPHIC


Table of Contents

GRAPHIC


Table of Contents


TABLE OF CONTENTS

 
  Page  

PROSPECTUS SUMMARY

    1  

THE OFFERING

    11  

LETTER FROM CHAIRMAN JIANMING LIN

    19  

RISK FACTORS

    21  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

    80  

USE OF PROCEEDS

    81  

DIVIDEND POLICY

    82  

EXCHANGE RATE INFORMATION

    83  

CAPITALIZATION

    84  

DILUTION

    86  

ENFORCEMENT OF CIVIL LIABILITIES

    88  

CORPORATE HISTORY AND STRUCTURE

    90  

SELECTED CONSOLIDATED FINANCIAL DATA AND OPERATING DATA

    94  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    97  

OUR INDUSTRY

    130  

BUSINESS

    136  

REGULATION

    171  

MANAGEMENT

    183  

PRINCIPAL SHAREHOLDERS

    192  

RELATED PARTY TRANSACTIONS

    197  

DESCRIPTION OF SHARE CAPITAL

    199  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    216  

SHARES ELIGIBLE FOR FUTURE SALE

    227  

TAXATION

    229  

UNDERWRITING

    236  

EXPENSES RELATING TO THIS OFFERING

    246  

LEGAL MATTERS

    247  

EXPERTS

    248  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    249  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

        No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the ADSs offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

        Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

        Until                , 2018 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

i


Table of Contents



PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors," before deciding whether to buy our ADSs. In addition, this prospectus contains information from a report prepared by Oliver Wyman Consulting (Shanghai) Limited, or Oliver Wyman, a third-party market research firm. Oliver Wyman was commissioned by us to provide information on China's credit card repayment market, which is a subset of China's financial services market.

Our Mission

        Our mission is to be the most trusted lifetime financial partner to credit-proven millennials in China.

Our Value Propositions

        Our value to customers: Trusted, smart and affordable financial solutions.

        Our value to financial institution partners: Innovative technology solutions to gain access to and better serve credit-proven millennials across China.

Overview

        We are the only loan facilitator in China focused on facilitating credit card balance transfer products with a weighted average APR lower than 18.25%, the annual interest rate cap for credit cards set by the PRC regulators, according to Oliver Wyman. We also ranked third in terms of number of registered users as of 2017 among the credit card repayment facilitators in China, according to Oliver Wyman. We believe we are the first company to facilitate balance transfer products through a purely online platform in China.

        We are a leading financial technology service company in China redefining credit card experiences. We were established in 2015 by a group of well-respected veterans with extensive experience in China's consumer finance industry. We work with financial institutions to provide credit services to credit-proven millennials, who are existing credit card holders and have been approved by our credit assessment system for having prime credit. We believe our services represent smarter and more affordable financing alternatives for our customers. We also provide financial institutions with access to high-quality consumer finance assets with lower risk profiles than traditional bank installment assets, while enhancing their operational efficiency and risk management capabilities through our proprietary artificial intelligence-based technology solutions.

        We strategically focus on credit-proven millennials in China, especially individuals born in the 1980s and 1990s who already have a credit card, which comprises 78% of our customers with an approved credit line, as of June 30, 2018. Unlike in the United States, credit card penetration in China is still comparatively low, making credit-proven millennials who already have established credit history with banks a cohort with prime credit quality and low delinquency rates. They are well-educated and at an early stage of their career with high potential for income growth. They have strong consumption demand but need access to credit due to inadequate savings. They also care about their credit record, which generally reduces their delinquency rate. These characteristics drive millennials to demand more financial and credit services that are not only accessible but also offer a better customer experience and lower costs, which traditional financial institutions have difficulties in providing. We address this demand by providing our customers with more flexible and affordable financing options. We also help traditional financial institutions overcome technological and geographical barriers to cost-effectively serve customers across China, without having to invest significant time and resources to attain sufficient

1


Table of Contents

scale to access high-quality low-risk assets. In 2017 and the six months ended June 30, 2018, the weighted average APR for our credit services was 17.0% and 21.5%, respectively. We have established a barrier of entry in the form of competitive pricing in the balance transfer product segment we serve by optimizing costs at every stage of our operations, including customer acquisition, funding, risk management and collection.

        We currently facilitate three credit services for our customers:

    Credit card balance transfer—Our primary credit service is credit card balance transfer, which extends credit to finance our customers' repayment of their credit card bills. Credit card balance transfer represented 74.7% and 42.1% of our total loan facilitation volume in 2017 and the six months ended June 30, 2018. Our credit card balance transfer services provides a credit line featuring a principal amount ranging from RMB3,000 (US$453.4) to RMB30,000 (US$4,533.7) with a flexible term of 3, 6 or 12 months, and a competitive effective APR ranging from 10.04% to 24.00% with a weighted average APR of 15.1% and 15.5% in 2017 and the six months ended June 30, 2018, respectively, which is lower than the APR offered by banks in China for similar products. We offer the lowest weighted average APR among credit card repayment facilitators in China, according to Oliver Wyman.

    Cash advance—To complement our credit card balance transfer and meet our customers' varied financial needs, we also offer cash advance which shares the credit line with credit card balance transfer. Our cash advance features a term of 3, 6 or 12 months, and an effective APR ranging from 15.58% to 24.00% with a weighted average APR of 20.7% both in 2017 and the six months ended June 30, 2018, which is lower than the APR offered by banks in China for similar products.

    Credit loans—Our credit loans feature a term of 3, 6 or 12 months and a larger principal amount between RMB20,000 (US$3,022.4) and RMB50,000 (US$7,556.2), and an effective APR ranging from 24.00% to 36.00% with a weighted average APR of 27.8% and 29.2% in 2017 and the six months ended June 30, 2018, respectively.

        The credit services facilitated by us are primarily provided through our proprietary mobile application platform Shengbei, which provides our users with a superior streamlined user experience, processing substantially all loan applications instantaneously and disbursing any funds within approximately two minutes.

        We cooperate with financial institutions to facilitate loan transactions for our customers. We provide our financial institution partners with integrated technology-driven solutions across the entire credit transaction process. With these solutions, our partners can expand their customer base using our cost-efficient customer acquisition systems while obtaining improved and stable asset quality through our risk-management solutions. Our solutions provide our partners with immediate access to our customers and allocate assets according to financial institutions' different risk-return parameters. Despite our limited operating history in China's online consumer finance market, leveraging our track record of low delinquency rates, long-standing relationship and trust with our financial institution partners and our commitment to compliance, we are rapidly migrating to a non-guarantee loan facilitation model. Under this model, we facilitate loan transactions for financial institution partners for a service fee, without taking credit risk on transactions. This non-guarantee loan facilitation model enables collaborative risk management with financial institution partners and frees us from providing any guarantee in the form of risk reserve deposit, guarantee or insurance payment for any loan delinquencies. As of June 30, 2018, we have established partnerships with 19 financial institutions, including commercial banks, consumer finance companies, trust companies and microlending companies, which provide funding to our borrowers. We will continue to build up our financial institution partner base.

2


Table of Contents

        We strategically optimize our customer acquisition channels to reach a broad customer audience, while maximizing the cost-effectiveness of our customer acquisition efforts. Our customer acquisition efforts have translated into a substantial increase in the number of users registered on our platform from 6.4 million as of December 31, 2016 to 17.0 million as of December 31, 2017, and further increased to 24.4 million as of June 30, 2018. We believe we are one of the few market participants who are able to perform our credit assessment without needing historical customer behavior data (such as shopping patterns on e-commerce platforms, etc.). This frees us from the need to accumulate behavioral data on customers for a period of time before being able to assess their credit. We believe this enhances the accuracy of our models and allows us to maintain asset quality, while reducing the susceptibility of our results to fraud. For customers that we acquire but who do not meet our credit assessment criteria, we provide tailored third-party credit-related recommendation services to them based on their credit assessment results. We also provide our customers with access to a variety of customized credit card offers, insurance products and wealth management products offered by third-party financial services providers. For our recommendation services, we do not take any credit risk and charge our third-party financial services providers a recommendation fee, which allows us to monetize our user traffic and effectively offset our customer acquisition costs.

        We have integrated advanced technologies in every aspect of our business operations, which has enabled us to effectively provide credit-proven millennials with a superior user experience and to work with financial institutions under a service model without taking credit risk. We have established a full matrix of proprietary technology systems, which we call "Seven Swords" that are applied across our entire business process, covering customer acquisition, fraud detection, credit assessment, post-facilitation management, cooperation with financial institutions and customer servicing. By processing and analyzing customer data aggregated during the whole transaction process, the "Euler" customer acquisition channel monitoring system enables us to continuously optimize our customer acquisition strategies, budgets and procedures by anticipating customer behaviors. Leveraging our artificial intelligence capabilities, we have distilled over 2,600 features from customer data and developed a comprehensive set of proprietary models, including our "Orion" anti-fraud model, "DNA" credit scoring model, "LBSRM" geographical location model and "Alpha S" credit decision bot, all of which buttress our ability to offer enhanced risk management solutions to our financial institution partners.

3


Table of Contents

        We have experienced robust growth since the commencement of our operations, as illustrated by the charts below:

Accumulated Registered Users   Average Number of Monthly Active Users


GRAPHIC

 


GRAPHIC

 

Number of Transactions   Loan Facilitation Volume


GRAPHIC

 


GRAPHIC


Accumulated Active Borrowers

GRAPHIC

        Our net operating revenue increased from RMB53.0 million in 2016 to RMB240.4 million (US$36.3 million) in 2017, representing a 353.5% increase. Our net operating revenue increased from RMB83.1 million for the six months ended June 30, 2017 to RMB230.0 million (US$34.8 million) for the six months ended June 30, 2018, representing a 176.8% increase. Our net loss decreased from RMB94.0 million in 2016 to RMB67.0 million (US$10.1 million) in 2017, representing a 28.7% decrease. Our net loss was RMB48.0 million for the six months ended June 30, 2017 and our net profit was RMB25.6 million (US$3.9 million) for the six months ended June 30, 2018.

Industry Overview

        The consumption ability of people in China has been increasing rapidly. This growth in expenditure has been supported by increasing leverage on borrowing, evidenced by a CAGR of 27% in the outstanding balance of personal consumption loans in China from 2011 to 2017, which was significantly higher than the CAGR of 9% in China's real disposable income during the same period, according to Oliver Wyman. This phenomenon has led to a rapid increase in China's personal debt-to-income ratio from 5.9% in 2011 to 18.1% in 2017. However, this ratio is still far behind that of

4


Table of Contents

the United States which reflects significant growth opportunity for China's personal lending market. Individuals born between 1980 and 1999, also known as millennials, prominently exhibit these behavioral patterns in China. In particular, millennials have higher levels of education, are more prevalent amongst white-collar occupations, have higher spending propensities, generally have inadequate savings, and have higher propensities to use financial service products, especially through online channels. These factors are expected to translate into higher demand by millennials for financial services, particularly, credit card and credit card repayment services.

        China's credit card loans market is expected to grow at a CAGR of 25% from RMB5.6 trillion (US$0.8 trillion) in 2017 to RMB16.7 trillion (US$2.5 trillion) in 2022 in terms of outstanding loan balance, being the fastest growing segment within the personal credit market. The characteristics of China's credit card market are significantly different from that of the United States. Credit cards are prevalent in the United States, with approximately 66% of the adult population (defined as age 15 or above) holding credit cards as of 2017, as compared to 21% in China. In 2017, each person in the United States owned 2.0 credit cards on average, compared to only 0.6 credit cards in China. As a result, owning a credit card in China is a good indicator of creditworthiness, whereas in the United States, credit card ownership has penetrated into almost all social and economic classes. Furthermore, due to low credit card penetration, there is still significant demand for cash advances in China.

        In addition, credit cards are more often perceived as a pure payment and transaction tool in China. Going forward, as more people use their credit card as a credit instrument, interest bearing assets are expected to take a larger percentage of total credit card outstanding balance. Interest bearing balance is expected to increase from RMB2.0 trillion (US$302.2 billion) in 2017, representing 36% of total balance, to RMB7.9 trillion (US$1.2 trillion) in 2022, representing 47% of total balance.

        A number of key factors are critical to successfully operating in China's credit card repayment facilitation market, which include:

    Technology-enabled risk management;

    Technology-enabled operations with high efficiency; and

    Diversified funding sources.

Our Competitive Strengths

        We believe the following competitive strengths contribute to our success and differentiate us from our competitors:

    The lowest APR credit card balance transfer facilitator in China;

    Experienced management team with exceptional industry knowhow;

    Technology-enabled platform with proven results;

    Unique and efficient technology-based customer acquisition and retention model; and

    Rapidly transitioning to asset-light service model with financial institution partners.

Our Strategies

        We intend to achieve our goals by pursuing the following strategies:

    Create value for customers' lifetime needs through broadening service offerings;

    Expand our customer base and enhance our brand recognition;

    Nurture deep partnerships with financial institutions; and

5


Table of Contents

    Continue to invest in data and technology.

Our Challenges

        The successful execution of our strategies is subject to risks and uncertainties related to our business, including those relating to:

    our limited operating history in China's evolving and emerging online consumer finance market;

    our ability to maintain or increase the amount of transactions facilitated through our mobile application platform, provide a high-quality customer experience, attract new customers, retain existing customers, or increase customer activity;

    the uncertainties of the laws and regulations governing the online consumer finance industry;

    our ability to secure additional funding for our customers when needed from current or new financial institution partners on terms acceptable to us, or at all;

    our ability to maintain low and stable delinquency and default rates for transactions facilitated by us;

    our ability to service the transactions we facilitate and the success of our collection process

    our ability to maintain relationships with our financial institution partners and third-party financial service providers or develop new ones;

    our ability to retain our management team and key employees;

    our ability to compete effectively; and

    our ability to promote and maintain our brand and reputation.

Recent Developments

        ln August 2018, Shenzhen Samoyed lnternet Finance Services Co., Ltd. made an investment in an amount of RMB2 million to acquire 25% of the equity interest of Shenzhen Zikang lnternet Technology Co., Ltd. which focuses on online user acquisition.

6


Table of Contents

Corporate Structure

        The following diagram illustrates our corporate structure as of the date of this prospectus, including our principal subsidiaries and our variable interest entities.

GRAPHIC


(1)
Major persons or entities that beneficially own Samoyed Internet Finance's equity interests include affiliates of our principal shareholders, TL Development Limited, TLJC Development Limited, TLZX Development Limited, YIL Samoyed Ltd and YH Argo (BVI) Limited. For a description of our principal shareholders, see "Principal Shareholders."

        PRC laws and regulations impose restrictions on foreign ownership and investment in internet-based businesses such as distribution of online information and other value-added telecommunications services. We are a Cayman Islands company and our PRC subsidiary is considered a foreign invested enterprise. To comply with PRC laws and regulations, we have entered into a series of contractual arrangements, through our PRC subsidiary Samoyed Information Technology Co., Ltd., with our variable interest entities, namely, Shenzhen Samoyed Internet Finance Service Co., Ltd. and Shenzhen

7


Table of Contents

Wuyu Technologies Services Co., Ltd., the shareholders of our variable interest entities to obtain effective control over the variable interest entities.

        We currently conduct our business through our variable interest entities based on these contractual arrangements, which allow us to:

    exercise effective control over our variable interest entities;

    receive substantially all of the economic benefits from our variable interest entities; and

    have an exclusive option to purchase all or part of the equity interests in our variable interest entities when and to the extent permitted by PRC law.

        As a result of these contractual arrangements, we have become the primary beneficiary of our variable interest entities under U.S. GAAP. We have consolidated the financial results of our variable interest entities in our consolidated financial statements in accordance with U.S. GAAP. See "Corporate History and Structure—Contractual Arrangements with Consolidated VIEs and Their Shareholders."

Corporate Information

        We were incorporated as an exempted company under the laws of the Cayman Islands and we conduct our business through our subsidiaries and variable interest entities and their subsidiaries in China. For a further description of our corporate history and restructuring, see "Corporate History and Structure." Our principal executive offices are located at 902/903, B4, Kexing Science Park, No. 15 Keyuan Road, Science and Technology Park, Nanshan District, Shenzhen, People's Republic of China. Our telephone number is +86-755 8695 7589. Our registered office in the Cayman Islands is located at the offices of Osiris International Cayman Limited, Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, PO Box 32311, Grand Cayman KY1-1209, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc. located at 10 East 40th Street, 10th Floor, New York, N.Y. 10016, United States.

        Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website address is www.smyfinancial.com. The information on our website is not deemed, and you should not consider such information, to be part of this prospectus.

        We qualify as "emerging growth company" as the term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, we are subject to certain reduced public company reporting requirements. We are also eligible for, and intend to rely upon, exemptions from certain listing requirements of the New York Stock Exchange as a "controlled company." See "Risk Factors—Risks Related to our ADSs and this Offering" for more information.

Implications of Being an Emerging Growth Company

        As a company with less than US$1.07 billion in revenue for the last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. As such, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of our internal control over financial reporting. Under the JOBS Act we also do not need to comply with any new or revised financial accounting standards until the date that private companies are required to do so.

        We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of completion of this offering; (iii) the date on which we have, during the previous three year period, issued more than US$1.07 billion in non-convertible debt; or

8


Table of Contents

(iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.


Conventions Which Apply to this Prospectus

        Except where the context otherwise requires and for purposes of this prospectus only:

    "average funding cost" refers to the weighted total interest charged by our financial institution partners (weighted by each of the financial institution partners' contribution to the total amount of credit extended) for a given period divided by the total amount of credit extended by our financial institution partners;

    "ADSs" refers to our American depositary shares, each of which represents                Class A ordinary shares;

    "APR" or "effective APR" refers to the percentage number that represents the actual annualized cost of borrowing, including interest and service fees but excluding late payment charges, over the term of a loan calculated using the internal rate of return methodology;

    "CAGR" refers to compound annual growth rate;

    "China" or the "PRC" refers to the People's Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

    "credit approval rate" refers to the number of users with an approved credit line, divided by the accumulated number of registered users or loan applications received;

    "customers" refers to users who have been approved a credit line (in the case of our credit services) or who have been successfully recommended a third-party financial service (in the case of our recommendation services);

    "monthly active users" refers to users who used our Shengbei mobile application at least once during a given month;

    "M1+ collection rate" refers to the total amount of any installment repayment that is over 30 calendar days past due as of a particular date but are eventually collected, divided by the total amount of any installment repayment that is over 30 calendar days past due as of such date;

    "M3+ delinquency rate by balance" refers to the total outstanding balance for all loans of a customer for which any installment repayment is over 90 calendar days past due as of a particular date, divided by the total outstanding balance of all loans. Credit loans and loans that have been charged-off are not included in the M3+ delinquency rate calculation;

    "M3+ delinquency rate by vintage" refers to (i) the total amount of all loans facilitated in a vintage that become over 90 calendar days past due, less (ii) the total recovered amount for all loans in the same vintage, divided by (iii) the total amount of initial principal for all loans facilitated in such vintage. Credit loans are not included in the M3+ delinquency rate by vintage calculation;

    "MGM" refers to our Member-Get-Member customer referral program;

    "operating cost per transaction" refers to the aggregate of facilitation and servicing expenses, sales and marketing expenses and general and administrative expenses in a given period divided by the number of loan facilitations in such period;

9


Table of Contents

    "Samoyed Holding Limited," "we," "us," "our company" and "our" refer to Samoyed Holding Limited, an exempted company incorporated in the Cayman Islands with limited liability, and its subsidiaries, and, in the context of describing our operations and combined and consolidated financial information, also include its variable interest entities;

    "ordinary shares" prior to the completion of this offering refers to our ordinary shares of par value US$0.00001 per share, and upon and after the completion of this offering are to our Class A and Class B ordinary shares, each of par value US$0.00001 per share;

    "our variable interest entities" for the purpose of this prospectus refers to Shenzhen Wuyu Technologies Services Co., Ltd., or Wuyu Technologies, and Shenzhen Samoyed Internet Finance Service Co., Ltd., or Samoyed Internet Finance;

    "RMB" and "Renminbi" refer to the legal currency of China;

    "US$," "U.S. dollars," "$" and "dollars" refer to the legal currency of the United States;

    "users" refers to individuals who have registered an account on our platform Shengbei; and

    "weighted average APR" refers to the average APR of credit drawdowns weighted by loan volume that are facilitated by us in the specified period.

        Our reporting currency is the Renminbi. This prospectus contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars in this prospectus were made at the rate of RMB6.6171 to US$1.00, the noon buying rate on June 29, 2018, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On September 21, 2018, the noon buying rate for Renminbi was RMB6.8559 to US$1.00.

        In addition, unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.

10


Table of Contents

 


THE OFFERING

Offering price

  We currently estimate that the initial public offering price will be between US$                and US$                per ADS.

ADSs offered by us

 

                ADSs (or                ADSs if the underwriters exercise their over-allotment option in full).

ADSs outstanding immediately after this offering

 

                ADSs (or                ADSs if the underwriters exercise their option to purchase additional ADSs representing Class A ordinary shares in full)

Ordinary shares outstanding immediately after this offering

 

We will adopt a dual class ordinary share structure immediately prior to the completion of this offering.            Class A ordinary shares and 166,710,588 Class B ordinary shares (or            Class A ordinary shares and 166,710,588 Class B ordinary shares if the underwriters exercise in full the over-allotment option).

The ADSs

 

Each ADS represents                Class A ordinary shares of par value US$0.00001 per share.

 

The depositary will hold the Class A ordinary shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our Class A ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

You may surrender your ADSs to the depositary in exchange for our Class A ordinary shares. The depositary will charge you fees for any exchange.

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Ordinary Shares

 

Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares upon the completion of this offering. In respect of matters requiring shareholders' vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes.

11


Table of Contents

 

Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person who is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into the same number of Class A ordinary shares.

Over-allotment option

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an additional                ADSs.

Use of proceeds

 

We expect that we will receive net proceeds of approximately US$                 million from this offering, or approximately US$                 million if the underwriters exercise their option to purchase additional ADSs from us in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

  We plan to use the net proceeds of this offering for:

customer acquisition and brand building;

talent acquisition;

technology infrastructure;

strategic acquisitions or investments; and

general corporate purposes.

 

Accordingly, our management will have discretion in the application of net proceeds to us from this offering, and investors will be relying on the judgment of our management regarding the use of these net proceeds.

 

In the event that the initial public offering price per ADS is not finally determined to be US$                , the amount of proceeds for each use set out above will be adjusted on a pro rata basis. See "Use of Proceeds" for more information.

Depositary

 

Deutsche Bank Trust Company Americas

Lock-up

 

We, our directors and executive officers, all of our existing shareholders and all of our option holders have agreed with the underwriters not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus, subject to certain exceptions. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying Class A ordinary shares. See "Shares Eligible for Future Sale" and "Underwriting."

Listing

 

We intend to apply to have the ADSs listed on the the New York Stock Exchange under the symbol "SMY." Our ADSs and shares will not be listed on any other stock exchange or traded on any automated quotation system.

12


Table of Contents

Payment and settlement

 

The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company on,             ,2018.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

        The number of ordinary shares that will be outstanding immediately after this offering:

    is based upon            Class A ordinary shares and 166,710,588 Class B ordinary shares outstanding as of the date of this prospectus (assuming the automatic conversion of all convertible redeemable preferred shares into            Class A ordinary shares); and

    assumes no exercise of the underwriter's option to purchase additional ADSs representing Class A ordinary shares.

13


Table of Contents



Summary Consolidated Financial Data and Operating Data

        The following summary consolidated financial data for the years ended December 31, 2016 and 2017 and as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data for the six months ended June 30, 2017 and 2018 and as of June 30, 2018 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.

        Our consolidated financial statements are prepared and presented in accordance with the generally accepted accounting principles in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

14


Table of Contents

        The following table presents our summary consolidated statements of comprehensive profit/(loss) for the years ended December 31, 2016 and 2017 and for the six months ended June 30, 2017 and 2018.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2017   2018  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Summary Consolidated Statement of Comprehensive profit/(loss) Data:

                                     

Operating revenue:

                                     

Loan facilitation service fees

    31,644     86,439     13,063     31,277     133,804     20,221  

Post-facilitation management service fees

    3,843     16,073     2,429     5,583     9,234     1,396  

Financial guarantee income

    5,658     43,284     6,541     16,118     20,382     3,080  

Recommendation fees

    11,072     87,434     13,213     31,490     65,806     9,945  

Other revenue

    567     2,318     350     729     2,281     345  

Net interest income

    237     19,854     3,000     2,195     36,034     5,445  

Less: Loan provision losses

        (14,972 )   (2,262 )   (4,282 )   (37,547 )   (5,674 )

Net operating revenue

    53,021     240,430     36,334     83,110     229,994     34,758  

Operating expenses:

   
 
   
 
   
 
   
 
   
 
   
 
 

Facilitation and servicing expenses

    (42,023 )   (83,757 )   (12,658 )   (39,859 )   (44,815 )   (6,773 )

Guarantee loss

    (14,020 )   (47,632 )   (7,198 )   (17,696 )   (18,082 )   (2,733 )

Sales and marketing expenses

    (50,285 )   (97,873 )   (14,791 )   (39,968 )   (95,718 )   (14,465 )

General and administrative expenses

    (40,725 )   (75,258 )   (11,373 )   (33,618 )   (45,091 )   (6,814 )

Total operating expenses

    (147,053 )   (304,520 )   (46,020 )   (131,141 )   (203,706 )   (30,785 )

Other expenses:

                                     

Interest expense on convertible loans

        (2,265 )   (342 )       (6,105 )   (923 )

Fair value change of derivatives

        (684 )   (103 )       5,425     820  

(Loss)/profit before income tax expense

    (94,032 )   (67,039 )   (10,131 )   (48,031 )   25,608     3,870  

Income tax expense

                         

Net (loss)/profit

    (94,032 )   (67,039 )   (10,131 )   (48,031 )   25,608     3,870  

Accretion on convertible redeemable preferred shares to redemption value

    (5,843 )   (21,282 )   (3,216 )   (9,840 )   (14,810 )   (2,238 )

Net (loss)/profit attributable to ordinary shareholders

    (99,875 )   (88,321 )   (13,347 )   (57,871 )   10,798     1,632  

15


Table of Contents

        The following table presents our summary consolidated balance sheet data as of December 31, 2016 and 2017 and as of June 30, 2018.

 
  As of December 31,   As of June 30,  
 
  2016   2017   2018  
 
  RMB   RMB   US$   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Summary Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    35,984     70,324     10,628     94,297     14,250  

Restricted cash

    56,761     126,554     19,125     481,087     72,704  

Loan receivable, net

        1,214,036     183,470     1,049,651     158,626  

Total assets

    149,896     1,577,393     238,381     1,935,571     292,510  

Funding debt

        1,249,849     188,882     1,461,469     220,862  

Total liabilities

    47,289     1,446,825     218,649     1,578,406     238,534  

Total mezzanine equity

    147,643     233,925     35,352     449,724     67,964  

Total shareholders' (deficit)

    (45,036 )   (103,357 )   (15,620 )   (92,559 )   (13,988 )

        The following table presents our summary consolidated statements of cash flow data for the years ended December 31, 2016 and 2017 and for the six months ended June 30, 2017 and 2018.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2017   2018  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Summary Consolidated Statements of Cash Flow Data:

                                     

Net cash (used in)/provided by operating activities

    (98,392 )   (99,257 )   (15,000 )   (75,958 )   286,331     43,271  

Net cash (used in)/provided by investing activities

    (3,672 )   390     59     4,378     (4,990 )   (754 )

Net cash provided by financing activities

    184,500     203,000     30,678     49,000     97,165     14,684  

Net (decrease in)/increase in cash and cash equivalents

    82,436     104,133     15,737     (22,580 )   378,506     57,201  

16


Table of Contents

Key Operating and Financial Metrics

        We regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.

 
  As of or for the
year ended
December 31,
  As of or for the
six months
ended June 30,
 
 
  2016   2017   2018  

Accumulated number of registered users(1) (in thousands)

    6,406     17,027     24,446  

Accumulated number of users with approved credit line(2) (in thousands)

    446     889     1,120  

Average number of monthly active users over the period (in thousands)(3)

    751     1,739     3,381  

Average number of loan transactions per customer for the last twelve months(4)

    2.6     3.8     4.0  

Number of loan facilitations(5) (in thousands)

    749     1,977     1,241  

Accumulated amount of total approved credit line(6) (RMB in millions)

    3,084     9,002     15,397  

Loan facilitation volume(7) (RMB in millions)

    2,767     7,664     6,716  

Credit card balance transfer

    2,749     5,726     2,828  

Cash advance

    18     1,355     1,520  

Credit loans

        583     2,368  

Outstanding principal balance(8) (RMB in millions)

    1,434     3,348     5,495  

Credit card balance transfer

    1,419     2,276     2,233  

Cash advance

    15     545     1,062  

Credit loans

        527     2,200  

Weighted average APR(9)

    14.5 %   17.0 %   21.5 %

M3+ delinquency rate by balance(10)

    0.42 %   0.82 %   1.66 %

Charge-off rate(11)

    0.04 %   1.23 %   2.66 %

(1)
Accumulated number of registered users represents number of individuals who have registered with us on a cumulative basis.

(2)
Accumulated number of users with approved credit line represents number of individuals who have an credit line approved by us on a cumulative basis.

(3)
Monthly active users represent users who have used our Shengbei mobile application at least once during a given month.

(4)
Average number of loan transactions per customer represents average number of credit drawdowns facilitated by us to each customer for the last twelve months ended on the specified date.

(5)
Loan facilitations represent the total number of credit drawdowns that are facilitated by us in the specified period.

(6)
Accumulated amount of total approved credit line represents the aggregate principal amount of credit lines that have been approved by us to the customers (including increase in credit lines for existing customers) on a cumulative basis.

(7)
Loan facilitation volume represents the aggregate principal amount of credit drawdowns that are facilitated by us in the specified period.

(8)
Outstanding principal balance represents the aggregate principal amount of credit drawdowns that are facilitated by us and have not been repaid as of the specified date.

(9)
Weighted average APR represents the average APR of credit drawdowns weighted by loan volume that are facilitated by us in the specified period.

17


Table of Contents

(10)
M3+ delinquency rate by balance represents the total outstanding balance for all loans of a customer for which any installment repayment is over 90 calendar days past due as of a particular date, divided by the total outstanding balance of all loans. Credit loans and loans that have been charged-off are not included in the M3+ delinquency rate calculation.

(11)
Charge-off rate represents the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due as of a particular date, divided by the total outstanding balance of all loans assuming that no loans are charged off. Loans that are not guaranteed by us are not included in the charge-off rate calculation.

18


Table of Contents


LETTER FROM CHAIRMAN JIANMING LIN

Perseverance Is Not Only A Choice But More of A Belief

        In 2003, when China's credit card industry was just beginning, I, along with my founding partners, joined China Merchant Bank's credit card center and began our careers in the financial industry. Our 15 years of experience in the credit card industry allows us to thoroughly understand how credit card companies in China operate. The entire operating model of the credit card industry can be boiled down to two forms of "subsidies". First is the subsidy that revolvers (credit card users who are unable to pay off their entire credit card statement balance by the due date) are providing to transactors (credit card users who always pay off their entire credit card statement balance by the due date). Transactors are able to benefit from essentially free credit when they use their credit card. They do so at the expense of revolvers, who are charged a high APR to roll over the balance on their credit card. Second is the subsidy that creditworthy revolvers are providing to revolvers with poor credit. Card users with poor credit are able to "free ride" on creditworthy users, since credit card companies do not distinguish among its users and offer them the same APR. As a result of these two forms of "subsidies", millennials who are creditworthy revolvers are poorly served financially as they are forced to pay a high APR to access credit while having others free ride on their creditworthiness. We believe that, with the help of technology, we have revamped the business model of credit card companies and improved overall efficiency in the industry to alleviate millennials' financial burden.

        Today, the Samoyed Holding we established is quickly becoming a trusted lifetime financial partner to credit-proven millennials in China. Our unwavering philosophy is to use the most efficient financial technology to provide our customers with financial services that are friendly, approachable and closely tailored to their credit and financial condition, to turn financial services into something that is "cozier". As participants and witnesses to the development of China's credit card and consumer finance industry, we understand that financial services have inherent risk. As we disrupt financial services with technology, we constantly remind ourselves that we must not stray away from the fundamentals of risk management. We firmly believe that China's consumer finance industry will develop in the direction of "cozy" financial services. Grounded in this belief, we have been able to resist the temptation of adopting a high APR and high-risk business model. To persevere has been difficult, but to make this choice was easy.

        As the regulatory environment continues to mature, China's internet finance industry has at last returned to the rightful path of compliant innovation. Our belief has allowed us to consistently operate on this path since our inception, to endure the tests of successive regulatory changes, and to continue achieving growth that is healthy and sustainable.

        Socrates sacrificed his life to defend the principle that "abiding by the law is justice," and we hope to defend "cozy finance" as a principle while operating our business successfully. We plan to leverage innovation in financial technology to reduce costs and enhance customer experience. Through our Orion model, we hope to manage risk to a minimal level. Through our Euler system, we seek to acquire prime customers with high efficiency and low cost. Through systems integration with our financial institution partners, we provide them with efficient access to our prime customer assets. Through our artificial intelligence-technology enhanced Alpha S system, we seek to drastically lower our labor costs. By enhancing efficiency at every stage of our business, we have established a virtuous cycle: we offer low APR products that attract prime customers, which in turn provide high-quality assets to our financial institution partners which reduce their risk. With lower risk, our financial institution partners can continue providing low-cost funding, which allows us to continue facilitating products with low APR. Through this business model, we have earned the trust of millions of users and, we believe, have created immense socio-economic value.

19


Table of Contents

        We cannot be more grateful to our investors, who have stood by us from the beginning and have not questioned our resolve. We are confident that more will join us on our exciting journey to create a "cozier" financial ecosystem.

GRAPHIC

Jianming Lin

Chairman

20


Table of Contents


RISK FACTORS

        Investing in our ADSs involves a high degree of risk. You should carefully consider the following risks, as well as other information contained in this prospectus, before making an investment in our company. The risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations, cash flows, ability to pay dividends and the trading price of our ADSs. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and ability to pay dividends, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

         We have a limited operating history in China's online consumer finance market, an emerging and evolving industry, which makes it difficult to evaluate our future prospects. Our historical financial and operating performance may not be indicative of our future results of operations.

        China's online consumer finance industry is new and may not develop as rapidly as expected. The regulatory framework for this industry is also evolving and may remain uncertain for the foreseeable future. Attracting and retaining customers and financial institution partners are critical to increasing the loan facilitations on our platform. Potential customers may not be familiar with this new industry and may have difficulty distinguishing our services from those of our competitors. In addition, our business has grown substantially in recent years, but our past growth rates and historical financial and operating performance may not be indicative of our future growth or results of operations. The emerging and evolving online consumer finance market makes it difficult to effectively assess our future prospects.

        We launched our mobile application platform Shengbei in 2015 and have a limited operating history. As our business develops, to meet the latest market trends, or in response to competition, we may continue to introduce new services and solutions or make adjustments to our existing services and solutions, or make adjustments to our business model in general. For example, in addition to credit services, we have also begun offering recommendation services on our mobile application platform. We intend to develop and expand into new non-credit services in the future. There is no assurance that these new services would be successful or that we would be able to optimize the mix of such services to maximize our margins. Furthermore, we may implement more stringent customer qualifications to reduce the delinquency rates of transactions facilitated by us, which may negatively affect the growth of our loan facilitation volume. We may seek to expand our prospective customer base, which may result in higher delinquency rates of transactions facilitated by us. In addition, we rely on our financial institution partners to fund the transactions that we facilitate. Our ability to continuously cooperate with financial institution partners who offer low cost funds is critical to our business. Inability to successfully achieve any of these initiatives or any significant change to our business model not achieving expected results may have a material and adverse impact on our financial condition and results of operations.

        You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving market. These risks and challenges include our ability to, among other things:

    navigate economic conditions and fluctuations;

    navigate an evolving regulatory and competitive environment;

    attract new and retain customers;

    increase the amount of transactions through our mobile application platform;

    offer personalized and competitive credit services and solutions and non-credit services and optimize the mix of such services;

21


Table of Contents

    effectively maintain and enhance our financial and risk management controls and procedures;

    improve our operational efficiency;

    diversify our financial institution partners who fund the transactions that we facilitate;

    continue to scale our technological infrastructure to support the growth of our mobile application platform and higher transaction volume;

    constantly monitor and upgrade the security of our systems and protect the confidentiality of the information provided and utilized on our mobile application platform;

    operate without being adversely affected by negative publicity, if any, about the industry in general and our company in particular;

    minimize risk of litigation, regulatory and administrative proceedings, claims of intellectual property infringement, privacy infringement and other claims; and

    attract, retain and motivate qualified management members and employees.

         If we are unable to maintain or increase the volume of loan transactions and recommendation services facilitated through our mobile application platform or if we are unable to provide a high-quality customer experience, attract new customers, retain existing customers, or increase customer activity, our business and results of operations will be adversely affected.

        We have experienced rapid growth in the volume of loan transactions facilitated on our platform. To continue to grow our business, we must continue to increase the volume of loan transactions and recommendation services facilitated on our mobile application platform, by retaining existing customers and attracting a large number of new customers who meet the qualifications of our financial institution partners and also generally increasing customer activity on our mobile application platform. The overall volume of loan transactions and recommendation services and the number of customers we have may be affected by several factors, including our brand recognition and reputation, the interest rates and credit limits offered to customers relative to market rates and limits, the effectiveness of our risk control, the repayment behavior of customers on our mobile application platform, the efficiency of our mobile application platform in engaging prospective customers, our ability to continue to offer recommendation services, the quality of our customer experience overall, the macroeconomic environment and other factors. We receive on a day-to-day basis a large amount of loan applications; however, a large amount of applications do not meet our minimum criteria. If there are insufficient qualified loan requests, our financial institution partners may be unable to deploy their capital in a timely or efficient manner and may seek other investment opportunities. If there are insufficient financial institution partner commitments, customers may be unable to meet their borrowing needs through our mobile application platform and may turn to other sources.

        In connection with the introduction of new services and solutions or in response to general economic conditions and risk appetite changes of our financial institution partners, we may also impose more stringent customer qualifications to ensure the quality of loans on our mobile application platform, which may negatively affect the growth of loan facilitation volume. If any of our current customer acquisition channels becomes less effective, if we are unable to continue to use any of these channels or if we are not successful in using new channels, we may not be able to attract new customers in a cost-effective manner or convert potential customers into active customers, and may even lose our existing customers to our competitors.

        If we are unable to effectively manage our growth, control our expenses or implement our business strategies, we may be unable to maintain a high-quality customer experience or increase customer activity on our mobile application platform, which in turn may affect our ability to maintain our customer base or amount of loan transactions and recommendation services facilitated on our platform.

22


Table of Contents

In addition, any negative publicity or poor feedback regarding our customer service may harm our brands, reputation and customer loyalty and in turn cause us to lose customers and market share. As a result, if we are unable to continue to maintain or enhance our customer experience and provide a high-quality customer service, and to attract and retain qualified customers and sufficient commitments from financial institution partners, we might not be able to increase our loan facilitations and recommendation service usage and operating revenue as we expect, and our business, financial condition and results of operations may be adversely affected.

         The laws and regulations governing the online consumer finance industry in the PRC are rapidly evolving and subject to further change and interpretation. If our business practices or the business practices of our financial institution partners are deemed to violate any PRC laws or regulations, our business, financial condition, results of operations and prospects would be materially and adversely affected.

        The PRC government's regulatory framework governing the online consumer finance industry in which we operate is rapidly evolving and is subject to further change and interpretation. Our business may be subject to a variety of laws and regulations in the PRC that involve financial services, including consumer finance, small credit, and private lending. The application and interpretation of these laws and regulations are ambiguous, particularly in the new and rapidly-evolving online consumer finance industry in which we operate, and may be interpreted and applied inconsistently between the different government authorities. However, if the PRC government adopts a stringent regulatory framework for the online consumer finance industry in the future, and subject market participants such as our company to specific requirements (including without limitation, capital requirements, reserve requirements and licensing requirements), our business, financial condition and prospects would be materially and adversely affected. The existing and future rules, laws and regulations can be costly to comply with and if our practice is deemed to violate any existing or future rules, laws and regulations, we may face injunctions, including orders to cease illegal activities, and may be exposed to other penalties as determined by the relevant government authorities.

        As of the date of this prospectus, we have not been subject to any material fines or other penalties under any PRC laws or regulations, including those governing the online consumer finance industry and microcredit companies in China. However, to the extent that we are not able to fully comply with any existing or new regulations when they are promulgated, our business, financial condition and results of operations may be materially and adversely affected. We are unable to predict with certainty the impact, if any, that future legislation, judicial precedents or regulations relating to the online consumer finance industry will have on our business, financial condition and results of operations. Furthermore, the growth in the popularity of online consumer finance increases the likelihood that the PRC government will seek to further regulate this industry. In addition, new and more stringent PRC laws and regulations regarding the online consumer finance industry may be promulgated during the offering period, which may materially and adversely affect the completion of this offering.

        We cooperate with our financial institution partners, whose compliance with PRC laws and regulations may affect our business. Our collaboration with financial institution partners has exposed us to and may continue to expose us to additional regulatory uncertainties faced by such financial institution partners. Nonetheless, we cannot assure you that the business operations of our financial institution partners currently are or will be in compliance with the relevant laws and regulations, and in the event that our financial institution partners do not operate their businesses in accordance with the relevant laws and regulations, they will be exposed to various regulatory risks and accordingly, our business, financial condition and prospects would be materially and adversely affected.

    Regulations Related to Loan Facilitation and Intermediation

        In December 2017, the National Internet Finance Rectification Office, or the Internet Finance Rectification Office, and the National Online Lending Rectification Office, or the Online Lending

23


Table of Contents

Rectification Office, jointly released the Notice on Regulating and Rectifying "Cash Loan" Business, or the Circular 141, which requires financial institutions that cooperate with third parties to engage in lending businesses (i) not to outsource any core business of lending (including credit assessment and risk control), (ii) not to accept any credit enhancement, whether or not in a disguised form (including commitment to taking default risks) provided by any third parties with no guarantee approval or license, and (iii) must require and ensure that no interests or fees are collected from borrowers by such third parties. Due to the lack of further interpretation and implementation rules of the Circular 141, it is unclear whether our cooperation with financial institutions would be subject to such provisions under the Circular 141. If any of our institutional funding partners' cooperation arrangements with us, in particular the third-party guarantee and direct guarantee loan facilitation models, is deemed non-compliant with Circular 141, we may need to suspend or terminate such cooperation arrangement or to find alternate funding sources for our customers, which may be costly and take time and may impair our ability to facilitate loans for our customers on our platform. If that were to occur, our business, financial condition and results of operations would be materially and adversely affected. We have proactively adjusted our cooperation model with our financial institution partners by having them charge customers directly for any fees and pay certain service fees to us. Furthermore, we have begun steadily migrating to a non-guarantee loan facilitation model, where our financial institution partners will bear the credit risk in the event of customer defaults and we undertake no obligation to provide make-up payments for loans facilitated by us through any form of risk reserve deposit, insurance or guarantee. However, we cannot assure you that our interpretation of the relevant regulations will be the same as that of authorities, or that our solutions, including the ways the fees are charged, will be compliant. Due to the lack of interpretation and implementation rules and the fact that the laws and regulations are rapidly evolving, even if we implement any specific measures, we cannot assure you that the adjusted business model will be in full compliance with existing and future laws and regulations, nor can we assure you that we would not be required to make further change to our business in the future. If any of the foregoing were to occur, our business, financial condition and results of operations would be materially and adversely affected.

        In July 2015, the Guidelines on Promoting the Healthy Development of Internet Finance, or the Internet Finance Guidelines, were jointly released by ten PRC regulatory agencies. The Internet Finance Guidelines set out the regulatory framework and some basic principles on regulating the online consumer finance business in the PRC. The Internet Finance Guidelines specify that the China Banking Regulatory Commission, or the CBRC, now merged into the China Banking and Insurance Regulatory Commission, or the CBIRC, will have primary regulatory responsibility for the online consumer finance businesses in China, which as currently used in the Internet Finance Guidelines is interpreted as businesses conducted via the Internet by consumer finance companies. Pursuant to the Pilot Measures for the Administration of Consumer Finance Companies released by the CBRC in November 2013, or the Pilot Consumer Finance Measures, consumer finance companies in the PRC refer to non-banking financial institutions as approved by the CBRC that do not engage in taking public deposits from individual lenders and provide individual borrowers with consumer loans pursuant to the principles that such loans be a small amount in nature and widely dispersed to various borrowers. However, the Internet Finance Guidelines and the Pilot Consumer Finance Measures do not explicitly provide guidance or requirements on other forms of online consumer finance business conducted by participants other than the CBRC-approved consumer finance companies as defined in the Pilot Consumer Finance Measures, including, for example, our business. Therefore, it is currently uncertain whether our business practice is subject to the relevant rules regarding online consumer finance companies provided under the Internet Finance Guidelines and consumer finance companies provided under the Pilot Consumer Finance Measures. Given the evolving regulatory environment of the consumer finance industry, we cannot rule out the possibility that the CBIRC or other government authorities will issue new regulatory requirements to institute a new licensing regime covering our industry. If such a license regime is introduced or new regulatory rules are promulgated, we cannot

24


Table of Contents

assure you that we would be able to obtain any new licenses or other regulatory approvals in a timely manner, or at all, which would materially and adversely affect our business and impede our ability to continue our operations.

        In addition, in August 2016, the CBRC, the Ministry of Industry and Information Technology, or the MIIT, the Ministry of Public Security of China and the Office for Cyberspace Affairs jointly promulgated the Interim Online Lending Information Intermediary Measures for Administration of the Business Activities of Online Lending Information Intermediary Institutions, or the Interim Online Lending Information Intermediary Measures, which set out certain rules to regulate the business activities of online lending information intermediary institutions. The Interim Online Lending Information Intermediary Measures define "online lending" as direct lending between peers, which can be natural persons, legal persons or other organizations, through Internet platforms, and "online lending information intermediary institutions" as financial information intermediaries that are engaged in lending information business and directly provide peers with lending information services, such as information collection and publication, credit rating, information interaction and loan facilitation between borrowers and lenders for them to form direct peer-to-peer lending relationships. The Interim Online Lending Information Intermediary Measures are only applicable to private lending transactions according to relevant interpretations by the China Banking Regulatory Commission. Loans funded by financial institutions which are licensed by financial regulatory authorities are not private lending transactions within the meaning of the Private Lending Judicial Interpretation issued by the Supreme People's Court of the PRC in August 2015. Therefore, facilitation of loans funded directly by such licensed financial institutions is not subject to the regulation set forth in the Interim Online Lending Information Intermediary Measures.

        We do not engage in loan facilitation between peers. While we facilitate transactions that are directly funded by certain financial institution partners, such companies are financial institutions licensed by financial regulatory authorities to lend. As such, we do not consider ourselves as an "online information intermediary institution" regulated under the Interim Online Lending Information Intermediary Measures. However, we cannot assure you that the CBIRC or other PRC governmental agencies would not expand the applicability of the Interim Online Lending Information Intermediary Measures and/or otherwise regard us as an online lending information intermediary institution. As a provider of online credit services and solutions, our business shares certain similarities with those of peer to peer platforms. In the event that we are deemed as an online lending information intermediary institution by the PRC regulatory authorities in the future, we may have to register with local financial regulatory authorities and apply for telecommunication business operation licenses if required by the competent authorities, and our current business practices may be considered to be in violation of the Interim Online Lending Information Intermediary Measures. Accordingly, we may face administrative orders to make rectification, receive administrative warnings or criticism notices, monetary penalties up to RMB30,000 and other penalties, and our business, results of operations and financial position could be materially and adversely affected.

        Given the above, there is substantial uncertainty as to the competent governmental authority that directly regulates our business activities. Although we have been in frequent communications with regulatory authorities to clarify the relevant regulatory requirements and to ensure our full compliance with the laws and regulations, there is no assurance that these authorities are the competent regulatory authorities that regulate our business activities, or that any other regulatory authority would not issue regulations covering our business activities. It is also possible that new laws and regulations may be adopted, or existing laws and regulations may be interpreted in new ways, which, along with any possible changes needed to fully comply with any existing or newly released regulations, could require us to further modify our business or operations. The cost to comply with such laws or regulations would increase our operating expenses, and modifications of our business may have a material and adverse impact on our business, financial condition and results of operations.

25


Table of Contents

    Regulations Related to Asset Management Business

        In April 2018, the People's Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, and the State Administration of Foreign Exchange, or SAFE, jointly issued the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions, or the Asset Management Rules, which provides, among others, a series of new and more strict rules for financial institutions to operate "asset management business", which refers the financial service whereby financial institutions accept the entrustment by investors to invest and manage the investors' assets entrusted thereto. In some cases we facilitate credit services to customers through trusts we establish in collaboration with trust companies, and each trust has a specified term and typically a fixed rate of return on the investment entitled to investors. The practice of the trust companies, as financial institutions, under such arrangements might be deemed as operating asset management business under the Asset Management Rules, we cannot assure you that the trust companies' practices under our cooperation arrangements with them are and will be in full compliance with the Asset Management Rules. In the event such trust companies do not operate their businesses in accordance with the Asset Management Rules, we may need to suspend or terminate our cooperation with them and find alternate compliant trust companies, which may be costly and time-consuming and may impair our ability to facilitate loans on our platform. Moving forward, we would also cooperate with compliant trust companies, when may limit the sources of funding available to us.

         Our business may be adversely affected if we are unable to secure additional funding for our customers when needed from current or new financial institution partners on terms acceptable to us, or at all.

        We collaborate with financial institution partners to fund credit drawdowns we facilitate. Our current financial institution partners include commercial banks, consumer finance companies, trust companies and insurance companies. We have entered into cooperation agreements with our financial institution partners to facilitate credit services to our customers. We also facilitate credit services to customers through trusts we establish in collaboration with trust companies. The transaction volume of credit services we facilitate on our mobile application platform has increased from approximately RMB2,767 million in 2016 to RMB7,664 million (US$1,158.2 million) in 2017, and was RMB6,716 million (US$1,015.0 million) for the six months ended June 30, 2018. We expect that our funding arrangements will continue to evolve as we explore new sources of funding as well as new risk sharing or transfer arrangements. There can be no assurance that our cooperation with new financial institution partners will meet our expectations, in particular, on terms acceptable to us, or the expectations of customers.

        The availability of funding from financial institution partners depends on many factors, some of which are out of our control, including regulatory or other limitations. In order to access funding from certain of our financial institution partners under our third-party and direct guarantee facilitation models, we are at times required to (i) maintain a risk reserve deposit with the financial institution partner, (ii) pay for credit guarantee insurance that provides credit enhancement from a licensed third-party insurance company, or (iii) pay for guarantees from a licensed third-party financing guarantee company. There can be no assurance that we would be able to continue to pay such deposits or obtain such credit guarantee insurance or guarantees from current and future insurance companies or financing guarantee companies on terms acceptable to us, or at all, including as a result of new regulatory or other limitations. In addition, certain of the commitments under our cooperation agreements with our financial institution partners may be terminated or adjusted at the discretion of our partners. In the event there is a sudden or unexpected shortage of funds from our financial institution partners or if our financial institution partners have determined not to continue to collaborate with us, whether resulting from our inability to obtain credit enhancement insurance or not, we may not be able to maintain necessary levels of funding without incurring high costs of capital, or at all.

26


Table of Contents

        Although we are steadily migrating to a non-guarantee loan facilitation model, there can be no assurance that our cost of funding will not increase in the future. Furthermore, historically our composition of financial institution partners has changed and we expect that such composition will continue to change as we continue to diversify. When we change our financial institution partners, we are required to expend significant resources to negotiate our cooperation agreements with them, and there can be no assurance that we can obtain funding on terms acceptable to us. While we have managed to diversify our funding sources, there can be no assurance that our funding sources will remain or become increasingly diversified in the future. If we become dependent on a small number of financial institution partners and any such financial institution partner determines not to collaborate with us or limits the funding that is available or we are otherwise forced to change the composition of our financial institution partners, our business, financial condition, results of operations and cash flow may be materially and adversely affected. Since inception, we have from time to time experienced, and may in the future experience, constraints on the availability of funds from our financial institution partners. Such constraints have affected and may continue to affect user experience, including by limiting our ability to approve new credit applications or resulting in us having to curtail the amount that can be drawn down by customers under their existing credit limits. Such limitations have in turn restrained, and may continue to restrain, the growth of our business. Any prolonged constraint as to the availability of funds from our financial institution partners may also harm our reputation or result in negative perception of the credit services and solutions we offer, thereby decreasing the willingness of prospective or existing customers to seek credit services and solutions from us or to draw down on their existing credit.

         Certain of our business arrangements may not comply with PRC regulations relating to financing guarantee.

        The State Council promulgated the Regulations on the Administration of Financing Guarantee Companies, or the Financing Guarantee Rules, on August 2, 2017 which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules, "financing guarantee" refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, and "financing guarantee companies" refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies shall be subject to the approval by the competent government department, and unless otherwise stipulated by the relevant authorities, no entity may operate a financing guarantee business without such approval. If any entity violates these regulations and operates a financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, confiscation of illegal gains if any, and if the violation constitutes a criminal offense, criminal liability shall be imposed in accordance with the law.

        On April 2, 2018, CBIRC, the National Development and Reform Commission, or NDRC, and the MIIT, together with several other governmental authorities, jointly adopted the Administrative Measures for the Financing Guarantee Business Permit, Measures for Measuring the Outstanding Amount of Financing Guarantee Liabilities, Administrative Measures for the Asset Percentages of Financing Guarantee Companies and Guidelines on business cooperation between banking financial institutions and Financing Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules, which further stipulates that "financing guarantee business" under the Four Supporting Measures of the Financing Guarantee Rules, among other things, includes "guarantee business related to loans", which refers to the activities whereby a guarantor provides guarantee for the loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of credit and other forms of debt financing.

27


Table of Contents

        We enter into cooperation agreements with our financial institution partners to facilitate credit services to our customers. See "Business—Our Financial Institution Partners—Cooperation Models with Financial Institutions." Under our third-party guarantee loan facilitation model, our financial institution partners enter into arrangements with licensed third-party insurance companies and financing guarantee companies to insure or guarantee against the risk of defaults of loans facilitated on our platform. As part of such arrangements, we are obligated to pay relevant costs for procuring such credit guarantee insurance and guarantees, and to compensate third-party insurance companies and financing guarantee companies for any repayment of delinquent amounts they make to the relevant financial institution partner in the event of customer defaults. Under our direct guarantee loan facilitation model, we are obligated to repay the full delinquent amount to the relevant financial institution or trust that we have established in collaboration with trust companies in the event of customer defaults. In certain cases, we are also required to maintain a risk reserve deposit equal to an agreed amount or a fixed percentage of the total credit line committed by such financial institution or the total investment amount in the trust. The financial institution has a right to be compensated by using the deposit amount for any delinquent repayments of loans facilitated on our platform and we are required to replenish any reductions. If we fail to replenish the deposit amount in a timely manner, the financial institution may suspend or terminate its partnership with us and, in certain cases, may also apply service fees we are entitled to receive under other loans extended by such partner to replenish any shortfall in the risk reserve deposit. In addition, under the direct guarantee loan facilitation model with trusts, we may also subscribe to the subordinated tranches of the trusts with our own capital to provide an alternative form of guarantee to the trust investors subscribing to the senior tranches of the trusts and the trust companies establishing the trusts. No payments are made to the subordinated tranche until the senior tranche units are fully paid. For the year ended December 31, 2017 and the six months ended June 30, 2018, approximately 92.4% and 43.8% of our credit services were facilitated under these two models, respectively, and as of December 31, 2017 and June 30, 2018, the outstanding principal balance of loans facilitated under these two models was approximately RMB2,821 million (US$426.3 million) and RMB2,341 million (US$353.7 million), respectively, representing 84.3% and 42.6% of our total outstanding principal balance, respectively.

        Due to the lack of further interpretations and the fact that the Four Supporting Measures of the Financing Guarantee Rules are newly adopted, the exact scope and application of "operating financing guarantee business" under such regulations are still unclear. There is still uncertainty as to whether we would be deemed to operate financing guarantee business because of our current arrangements with financial institution partners. As of the date of this prospectus, we have not been subject to any fines or other penalties under any PRC laws or regulations related to financing guarantee business. Given the evolving regulatory environment of the financing guarantee business, we cannot assure you that we will not be required in the future by the relevant governmental authorities to obtain approval or license for financing guarantee business to continue our collaboration with financial institution partners. If we are no longer able to collaborate with financial institution partners at all, or become subject to penalties, our business, financial condition, results of operations and prospects could be materially and adversely affected. We have proactively made a series of adjustments to our cooperation arrangements with our financial institution partners. On January 26, 2018, we and our Chairman Jianming Lin entered into a share purchase agreement with Hunan Huixin and its shareholders, to acquire 95% and 5% of the share capital of Hunan Huixin, respectively. Hunan Huixin possesses an approval to operate financing guarantee business within Hunan Province, which will expire on August 18, 2021 and can be extended subject to certain administrative conditions. For all the transactions facilitated under the direct guarantee loan facilitation model, with the exception of transactions facilitated through legacy trusts previously established prior to the promulgation of Circular 141 to facilitate loans under our direct guarantee loan facilitation model, we intend to guarantee such transactions through Hunan Huixin subject to its capacity under its leverage ratio. However, pursuant to the Financing Guarantee Rules and other laws and regulations applicable to financing guarantee companies, the outstanding amounts

28


Table of Contents

of the guarantee liabilities of a financing guarantee company shall not exceed ten times of its net assets, and only in certain limited circumstances will the upper limit be allowed to be raised to fifteen times. In light of such restrictions, we cannot assure you that Hunan Huixin will always have sufficient capacity to cover all the guarantee liabilities as envisaged under the direct guarantee loan facilitation model and we intend to inject capital into Hunan Huixin before it guarantees any loans. If a financing guarantee company is found to violate the aforementioned limit, it may be required to take rectification measures, or may be subject to fines, confiscation of illegal income, or in certain cases, its approval to operate financing guarantee business may be revoked. In addition, where a financing guarantee company plans to set up branches across provinces, it should obtain an approval to operate financing guarantee business from the competent local government authority in the place of such branch. Due to the lack of detailed interpretation of the applicable laws and regulations, there is uncertainty as to whether Hunan Huixin should set up branches outside Hunan Province as a result of its operation through the internet as envisaged under our cooperation arrangements with financial institutions that are established in various provinces in China. We cannot assure you the relevant approvals to set up such branches outside Hunan Province will be obtained in a timely manner, or at all, if Hunan Huixin is required to obtain such approvals. Currently, all of our financial institution partners are not based in Hunan. We are in the process of discussing with our partners as to whether any adjustments to our cooperation arrangements would be necessary for us to guarantee loans extended by them. Due to the aforementioned restrictions and uncertainties, it is uncertain whether our measures will be sufficient to ensure full compliance with the existing or future regulatory requirements. Given the evolving regulatory environment of the financing guarantee business, we cannot assure you that we will not be required in the future by the relevant governmental authorities to make rectifications. We cannot assure you that we would be able to take such rectification measures in a timely manner, or at all, which would subject us to the sanctions described above or other sanctions as stipulated in the new regulatory rules, and materially and adversely affect our business and impede our ability to continue our operations.

         If we are unable to maintain low and stable delinquency and default rates for transactions facilitated by us, and there is an increasing incident of non-payment, our business and results of operations and our reputation may be materially and adversely affected. Further, historical delinquency and default rates may not be indicative of future results.

        We may not be able to maintain low and stable delinquency and default rates for transactions facilitated by us, or such delinquency and default rates may be significantly affected by economic downturns or general economic conditions beyond our control and beyond the control of individual customers. For example, as overall consumer indebtedness and/or debt-to-income ratio increase in China, delinquency and default rates for transactions facilitated by us could increase, leading to an increase in incidence of non-payment, which could materially and adversely affect our business and results of operations. The M3+ delinquency rate by balance of credit card balance transfer and cash advance facilitated by us was 0.42%, 0.82% and 1.66% as of December 31, 2016 and 2017 and June 30, 2018, respectively. The charge-off rate(1) of credit card balance transfer and cash advance facilitated by us was 0.04%, 1.23% and 2.66% as of December 31, 2016 and 2017 and June 30, 2018, respectively. Furthermore, our charge-off rates for credit card balance transfer and cash advance may be different, as a result, the credit performance and profitability across the two products may differ. For example, as of June 30, 2018, our charge-off rate for cash advance is lower than the charge-off rate of credit card balance transfer as we define charge-off rate for credit card balance transfer/cash advance related to guarantee liability as the cumulative balance of unpaid (due) principal over 210 calendar days past due

   


(1)
Charge-off rate of credit card balance transfer and cash advance represents the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due as of a particular date, divided by the total outstanding balance of all loans assuming that no loans are charged off. Loans that are not guaranteed by us are not included in the charge-off rate calculation.

29


Table of Contents

as of a particular date, divided by the then-outstanding balance of the loans under financial guarantee. Although we began to facilitate cash advance products in the fourth quarter of 2016, we only began ramping up facilitation of such products in the second quarter of 2017, so insufficient time has passed for the charge-off rate for cash advance as of June 30, 2018 to be considered representative of the expected charge-off rate for cash advance in the future, and there is no assurance that such charge-off rate will continue to remain at the same or similar level. Introduction of new credit services and solutions or the wider utilization by customers of certain of our existing credit services that has longer durations, including credit loans, may also have a material adverse impact as to the delinquency and default rates for transactions facilitated by us. In addition, we may broaden our prospective customer base from time to time as we enhance our credit assessment model to include prospective customers in new customer groups, which may result in us experiencing higher delinquency and default rates for new customer groups as we test and refine our credit assessment model. As a result of such changes, we may be unable to maintain low and stable delinquency and default rates for transactions facilitated by us in the future.

        Although credit facilitated by us is funded directly by our financial institution partners, in certain cases under our direct guarantee loan facilitation business model, we are obligated to repay the full delinquent amount to the relevant financial institution in the event of customer defaults. In certain cases, we are also required to maintain a risk reserve deposit equal to an agreed amount or a fixed percentage of the total credit line committed by such financial institution or the total investment amount in the trust. The financial institution has a right to be compensated by using the deposit amount for any delinquent repayments of loans facilitated on our platform and we are required to replenish any reductions. Under our third-party guarantee loan facilitation model, we are obligated to pay relevant costs for procuring third-party credit guarantee insurance and guarantees, and to compensate third-party insurance companies and financing guarantee companies for any repayment of delinquent amounts they make to the relevant financial institution partner in the event of customer defaults. If we were to experience a significant increase in delinquency or default rate, our financial institution partners could terminate their cooperation with us and, in certain cases, may also apply service fees that we are entitled to receive under other loans extended by such partner to replenish any shortfall in the risk reserve deposit. Furthermore, as our service fees are typically set as the total amount of interest received by the financial institution in connection with the loans we facilitate less a fixed percentage of the principal amount of such loans, we would be unable to receive our service fees in the event that our customer defaults on the interest on their loan. If the delinquency and default rates were to increase or become unstable, the reputation of our risk management system and trust with our financial institution partners would also be affected. If any of the foregoing were to occur, our results of operations, financial position and liquidity and our reputation will be materially and adversely affected.

        In addition, as a result of our variable interests in trusts we have established in collaboration with trust companies, we consolidate the assets, liabilities, results of operations and cash flows of such trusts. Under our agreements with such trusts, we agree to absorb any losses sustained by such trusts for any defaulted loans. Loans extended by such consolidated trusts are recorded on our balance sheets as loans receivable, net of provision for loan losses. As of December 31, 2017 and June 30, 2018, we recorded loans receivable, net of provision for loan losses of RMB1,214.0 million (US$183.5 million) and RMB1,049.7 million (US$158.6 million), respectively, and maintained a provision for loan loss of RMB15.0 million (US$2.3 million) and RMB40.1 million (US$6.1 million), respectively. Although we have maintained a provision for loan losses at a level we consider adequate to provide for any losses that can be reasonably anticipated, there can be no assurance that our provision is adequate to cover any losses our consolidated trusts may sustain from any loan defaults. If any of the loans extended by our consolidated trusts were to default and our provision for loan loss is insufficient to cover any such losses, we may be required to impair the loan receivables and our business and results of operations may be materially and adversely affected.

30


Table of Contents

        Furthermore, our business model depends on maintaining stable and predictable delinquency and default rates for the transactions facilitated by us, a variable that is part of our "DNA" credit scoring model. Due to our limited operating history, we have limited amount of information to assess the overall delinquency and default rate of transactions facilitated by us, so our model may inaccurately predict future delinquency and default rates of transactions facilitated by us under certain circumstances. For instance, after initial credit is extended, a customer's risk profile may change due to a variety of factors, such as deteriorating financial situations, and there is no assurance that such changes will be captured by our credit scoring model in a timely manner. Our credit scoring may contain errors, flaws or other deficiencies that may lead to inaccurate credit assessment, and the data provided by customers and external data sources may be incorrect or obsolete. As a result, there may be a mismatch between our prediction and the actual delinquency and default rate that would cause the pricing of our services to be inaccurate, which may negatively affect our loan pricing and approval process, resulting in misclassified loans or incorrect approvals or denials of credit applications by us and our financial institution partners. If any of the foregoing were to occur in the future, the number of transactions facilitated by us would fall and our business and results of operations and our reputation with our financial institution partners may be materially and adversely affected.

         We rely on our proprietary models and systems and our flagship mobile application platform to service our users and customers and our financial institution partners. If our credit assessment system or our mobile application platform fails to perform effectively, such failure may materially and adversely impact our operating results.

        The success of our online mobile application platform relies heavily on our ability to detect, assess and control credit risk. Credit limits for our customers are determined and approved by our financial institution partners based on risk assessment conducted by our proprietary credit assessment system. We have stringent risk management protocols in place to effectively assess prospective customers' credit risk and minimize the risk of non-payment. From the point of receiving customer applications we request for the prospective customers' personal information supported by documentation, and we verify the data using internal and external sources. We conduct social network analysis through our anti-fraud model and geographical location model based on data provided by our customers or we have obtained from third-party sources to analyze customers' personal relationships to detect fraudulent applications. Our credit scoring model consolidates and processes the information and produces a credit score. Such models and systems use big data-enabled technologies, such as artificial intelligence and machine learning, which takes into account transactions that we have processed as well as credit analysis and data from multiple external sources. While we rely on big data analytics to refine our models and systems, there can be no assurance that our application of such technology will continue to deliver the expected benefits.

        The information and data we use may not be sufficient to allow us to adequately capture a prospective customer's credit risk. Such information and data include, among others, demographic information, credit history with us and with other financial institutions, and employment information and blacklists maintained by other forums and organizations. In addition, as we have a limited operating history, we may not have accumulated sufficient credit analysis and data to optimize our model and system. Even if we have sufficient credit analysis and data, such data and credit assessment models and systems might not be effective as we continue to increase the amount of transactions, expand the customer base and broaden our customer engagement efforts through different channels in the future. We constantly update and optimize our risk management system but the system may have loopholes or defects which may prevent us from effectively identifying risks, or the data provided may be inaccurate or stale or insufficient, such that we may misjudge the risk and misalign the risk profile and loan price. The information may also not be sufficient for prediction of future non-payment. Such risks and errors may erode the confidence of our financial institution partners in our mobile application

31


Table of Contents

platform and risk management system and therefore harm our reputation and adversely affect our business and results of operations.

        The software and algorithms we use for our anti-fraud model, credit scoring model, mobile application platform and other internal systems are highly technical and complex. These algorithms and software are essential to our smooth operation and risk management and credit assessment processes. We and our service providers constantly monitor, maintain and update them. However, if our models, systems or platform contains errors, bugs, programming or other errors, or system failures, if our models and systems are ineffective or if the credit analysis and data we obtained are incorrect or outdated, our credit assessment could be negatively affected, resulting in incorrect approvals or denials of credit applications or mispriced credit services by our financial institution partners. Our users and customers may also experience problems on our mobile application platform, and we may have trouble running our systems and programs for our business and operations. We may be unable to launch our new services, solutions or upgrades, and our ability to protect user and customer confidential information as well as our own intellectual property may be compromised. In addition, if we are unable to effectively and accurately assess the credit profiles of customers appropriately, we may either be unable to provide effective credit assessment solutions to our financial institution partners, affecting their ability to offer attractive interest rates and credit limits to our customers, or be unable to maintain low and stable delinquency and default rates of transactions facilitated by us. Our proprietary credit assessment system may fail to perform effectively and our risk and credit assessment may not be able to provide more predictive assessments of future customer behavior and result in better evaluation of our customer base when compared to our competitors. If any of the foregoing were to occur, our brand and reputation could be harmed, and could cause loss to our customers or financial institution partners, and expose us to liability for damages, adversely affecting our business and results of operations.

         Our business depends on our ability to service the transactions we facilitate and the success of our collection process.

        We have implemented payment and collection policies and practices designed to optimize regulatory compliant repayment, while also providing superior customer experience. After a loan is approved and disbursed to a customer, we continue to monitor the customer's credit profile and predict potential delinquency. We monitor the delinquency rate of each risk profile level in real time, and allocate resources to collection in advance according to the quantity and performance of outstanding loans. We use technology to optimize collection efficiency and improve collection outcomes. We determine collection priorities among customers and assign collectors with different level of experience based on estimated collection difficulty. The majority of our collection activities are done through automated processes by digital means such as payment reminder notifications on our mobile application, reminder text messages, voice messages and e-mails. If a loan remains overdue after three months, we then outsource loan collection to third-party contractors to optimize collection efficiency. Despite our servicing and collection efforts, we cannot assure you that we will be able to collect payments on the transactions we facilitate as expected.

        In addition, we aim to control delinquency by utilizing and enhancing our credit assessment system rather than relying on collection efforts to maintain healthy credit performances. As such, our collection team may not possess adequate resources and manpower to collect payment on and service the transactions we facilitated. As the amount of transactions facilitated by us increases in the future, we may devote additional resources into our collection efforts. However, there can be no assurance that we would be able to utilize such additional resources in a cost-efficient manner.

32


Table of Contents

        Moreover, the current regulatory regime for debt collection in the PRC remains unclear. Although we aim to ensure our collection efforts comply with the relevant laws and regulations in the PRC and we have established strict internal policies that our collections personnel do not engage in aggressive practices, we cannot assure you that such personnel will not engage in any misconduct as part of their collection efforts. Any such misconduct by our collection personnel or the perception that our collection practices are considered to be aggressive and not compliant with the relevant laws and regulations in the PRC may result in harm to our reputation and business, which could further reduce our ability to collect payments from customers, lead to a decrease in the willingness of prospective customers to apply for and utilize our credit or fines and penalties imposed by the relevant regulatory authorities, any of which may have a material adverse effect on our results of operations.

         Our business relies on financial institution partners and third-party financial service providers. If we cannot continue to maintain relationships with our financial institution partners and third-party financial service providers or develop new ones, our business may suffer.

        Our financial institution partners provide funding for the transactions that we facilitate for our credit services. Our third-party financial service providers provide us with third-party financial services that we recommend to our customers. We also provide risk management solutions and system integration solutions to our financial institution partners. Therefore, our relationships with various financial institution partners and third-party financial service providers are integral to the smooth operation of our business and provision of services on our mobile application platform and crucial to our success.

        Most of our agreements with our financial institution partners and third-party financial service providers are non-exclusive and do not prohibit our partners from cooperating with our competitors or from offering competing services. If our financial institution partners are dissatisfied with our solutions, they may terminate their relationship with us and switch to our competitors. As financial institutions, our financial institution partners and third-party financial service providers that provide our customers with financial services recommended by us are subject to oversight by the PBOC and/or other regulatory authorities and must comply with complex rules and regulations, licensing and examination requirements, including, but not limited to, minimum registered capital, maintenance of payment business licenses, anti-money laundering regulations and management personnel requirements. If they are unable to comply with these requirements, they may be exposed to various regulatory risks and penalties, including revocation of their license to operate, and they may be required to terminate their business with us. As a result our business, financial condition and prospects would be materially and adversely affected.

        In addition, our financial institution partners and third-party financial services providers may not meet the standards we expect under our agreements, or disagreements or disputes may arise between us and our partners and providers. There can be no assurance that we can maintain relationship with our existing financial institution partners and third-party financial service providers on commercially reasonable terms. We may also fail to develop new relationships with additional financial institution partners and third-party financial service providers. Moreover, we have seen financial services providers, such as our financial institution partners and third-party financial service providers, increasingly rely on their own online and technology capabilities to serve online and mobile users in recent years. If our financial institution partners and third-party financial services providers themselves become our competitors, our operations may be disrupted and we may need to arrange for substantially similar arrangements with other partners.

33


Table of Contents

         Our recommendation of third-party financial services to users may not be effective, which will result in dissatisfaction from both users and third-party financial service providers.

        We may not be able to recommend suitable third-party financial services for our users due to various reasons. Our third-party service recommendation system may fail to function properly. The data provided to us by our users, third-party financial service providers and third-party data partners may not be accurate or up to date. If users are recommended financial services but cannot ultimately obtain approval from third-party financial service providers, they may consider our platform and our credit assessment to be ineffective or consider our credit assessment system to be inaccurate or faulty. At the same time, third-party financial service providers may be dissatisfied with us for not effectively helping them acquire customers. After a customer is successfully approved for a third-party financial product or service, the customer may become dissatisfied with the financial product or service provided by the third-party financial service provider, or the third-party financial service provider may have difficulty collecting repayments from the customer. Both the customer and third-party financial service provider may associate their dissatisfaction and subsequent difficulties with our platform as the transaction was initiated on our platform. Customers may consequently be reluctant to continue to use our platform and third-party financial service providers may be hesitant to continue to partner with us. As a result, our business, reputation, financial performance and prospects will be materially and adversely affected.

         We have limited control over the product and service quality of certain of our financial institution partners and third-party financial service providers.

        As customers access financial products through our mobile application platform, they may have the impression that we are at least partially responsible for the quality of these products and services. Although we have undertaken certain diligence before cooperating with financial institution partners and we have established standards to screen third-party financial service providers before listing their products or services on our platform, we have limited control over the quality of the financial products and the services provided by certain of our financial institution partners and third-party financial service providers. In the event that a customer is dissatisfied with a financial product or the service of a financial institution partner or third-party financial service provider, we do not have any means to directly make improvements in response to customer complaints. Due to the large number of financial products and services listed on and referred by our mobile application platform and the extensiveness of our third-party financial service provider network, it is difficult for us to monitor and ensure the product and service quality of third-party financial service providers on our mobile application platform at any given time. If customers become dissatisfied with the financial products available on our mobile application platform or the services of our financial institution partners or third-party financial service providers, our business, reputation, financial performance and prospects could be materially and adversely affected.

         We are reliant on our core senior management team and our innovative corporate culture is important to our business. If one or more key executives were unable or unwilling to continue in their present positions or if we fail to maintain our culture, our business and results of operations may be adversely affected.

        Our business, corporate strategies and future performance depends on our core senior management team comprising our directors, executive officers and other key personnel. In particular, Mr. Jianming Lin, our co-founder and Chairman, and Mr. Debin Tang, our co-founder and Chief Executive Officer, are critical to our management, business operations and overall corporate strategies. If we fail to retain Mr. Lin and Mr. Tang or any of our key personnel, or if they are unable or unwilling to continue in their present position due to any reason, we will have to go through a difficult process of replacement. The replacement process will necessarily involve significant time and expenses and may adversely affect our business and results of operations and our business objectives may not be achieved at the pace we expected, or at all.

34


Table of Contents

        Our corporate culture fosters innovation, a collegiate environment of team effort and encourages creativity, which is important to our business and development of our service and solution upgrades. If we fail to maintain these valuable aspects of our culture during the course of our adaptation into a public company and building the relevant infrastructure, our future success and strategic goals may be affected. Furthermore we may be unable to retain and attract talent, leading to a negative impact on our business and corporate objectives.

         Our current level of service fee and recommendation fee rates may decline in the future. Any material reduction in our fee rates could reduce our profitability.

        We earn a substantial majority of our revenues from the service fees that we collect through our financial institution partners on the loans facilitated through our mobile application platform and the recommendation fees that we charge our third-party financial service providers for referring our users to their services. Under our current cooperation agreements with our financial institution partners, we receive a service fee typically set as the total amount of interest received by the financial institutions in connection with the loans we facilitate less a fixed percentage of the principal amount of such loans. For recommendation services, we charge third-party financial service providers recommendations fees, which are typically set as a fixed amount for each completed application or a click-through to a third-party platform. These fee rates may also be affected by a change over time in the mix of the types of services we provide to our customers, the macroeconomic factors, such as prevailing interest rates, as well as the competition in the online consumer finance industry. Any material reduction in our fee rates could have a material adverse effect on our business, results of operations and financial condition.

         If the operations of our third-party service providers are materially and adversely affected in any way or we cannot continue to maintain relationships with them, our business may suffer.

        Third parties supply us with external data including credit histories, government data, social media data and blacklists, as well as big data analyses. In particular, we rely on our financial institution partners to provide us with their analysis output based on data from PBOC credit reports of our prospective customers. Furthermore, third-party service providers maintain our security systems, ensuring confidentiality of data and prevention of malicious attacks. In addition, we rely on third parties for secure fund management and online payment and settlement services. Therefore, the uninterrupted and effective operations of our various third-party service providers and our relationships with them are integral to the smooth operation of our business and mobile application platform. Most of our agreements with third-party service providers are non-exclusive and do not prohibit third-party service providers from working with our competitors or from offering competing services. If our relationships with third-party service providers deteriorate or third-party service providers decide to terminate our respective business relationships for any reason, such as to work with our competitors on more exclusive or more favorable terms or if they become our competitors, or if their operations are interrupted or are materially and adversely affected for any reason, our operations may be disrupted. In addition, our third-party service providers may not meet the standards we expect under our agreements, or disagreements or disputes may arise between us and the third-party service providers. If any of the above were to occur, there is no assurance that we would be able to find alternative third-party service providers at reasonable costs, or at all, as a result, our business and results of operations may be adversely affected.

        We cooperate and rely on third-party payment agents to facilitate and service loans, collect transaction fees and ensure compliance with the relevant PRC laws and regulations that may be applicable to our business. Third-party payment agents in China are subject to oversight by the PBOC and must comply with complex rules and regulations, licensing and examination requirements, including, but not limited to, minimum registered capital, maintenance of payment business licenses, anti-money laundering regulations and management personnel requirements. Some third-party payment

35


Table of Contents

agents have been required by the PBOC to suspend their credit card pre-authorization and payment services in certain areas of China. If our third-party payment agents were to suspend, limit or cease their operations, or if our relationships with our third-party payment agents deteriorates or they were to otherwise terminate, we would need to arrange substantially similar arrangements with other third-party payment agents. Negative publicity about our or other third-party payment agents or the industry in general may also adversely affect financial institution partners' or customers' confidence and trust in the use of third-party payment agents to carry out the payment and custodial functions in connection with the facilitation of loans on our mobile application platform. If any of these were to happen, the operation of our mobile application platform could be materially impaired and our results of operations would suffer.

         If our brand or reputation is harmed in any way, including any negative publicity about us, our financial institution partners, third-party providers and the overall industry, in particular in relation to any misconduct, errors and system failure, our business and operating results may be materially and adversely affected. We may be unable to maintain our reputation and increase recognition of our brand without incurring significant expenditures.

        We are exposed to the risk of negativity publicity about us, our financial institution partners, third-party providers and the overall consumer finance industry in China. Negative press about the quality of loans and services, effectiveness, reliability and credibility of our mobile application platform, our proprietary credit assessment system, our ability to manage and resolve customer complaints, privacy and security measures and practices, litigation, regulatory landscape and the user experience on our mobile application platform, even if inaccurate, may lead to an adverse impact on our reputation and the use of our mobile application platform, which would harm our business and operating results. The PRC government has recently instituted general regulations and specific rules, including the Internet Finance Guidelines and Online Lending Information Intermediaries Measures and Circular 141, to develop a more transparent regulatory environment for the consumer finance industry. See "Regulation—Regulations Related to Loans Facilitation and Intermediation." Many companies in China's consumer finance industry have not been fully compliant with these regulations, which have adversely impacted the reputation of China's consumer finance industry as a whole. In addition, particularly in the last year, there have been an increasing number of business failures of, or accusations of fraud and unfair dealing against, companies in the consumer finance industry in China. Recently, as a result of reports that certain peer-to-peer lenders in the PRC have defaulted on their repayments, certain PRC governmental agencies have issued new guidelines regulating peer-to-peer lending activities. Although these guidelines do not directly impact our business, if any of the foregoing were to continue to occur, the PRC government may introduce additional regulations to regulate the online consumer financing industry, heighten regulatory scrutiny or limit further the scope of business of companies currently operating in the consumer finance industry, including us. In addition, any additional regulations could affect our ability to receive funding from our financial institution partners, the overall competitve landscape and credit performance of our customers in general, which could materially affect our business, financial condition and results of operations. Furthermore, a significant amount of our loan facilitation volume is facilitated through trusts established in collaboration with trust companies. If this model becomes widely adopted, the PRC government may also introduce additional regulations to regulate this funding model. There is no assurance that we would be able to comply with such regulations or that we would be able to absorb any costs associated with complying with such regulations. If customers and financial institution partners associate our Company with any failed companies in our industry, our reputation may be similarly harmed and customer confidence on our mobile application platform may be adversely affected. Misconduct by our employees or our financial institution partners, failures by us, our financial institution partners or our third-party service providers to meet expected standards, and inability to completely protect customer confidential information and compliance failures and claims may also cause harm to our reputation and brand.

36


Table of Contents

Negative publicity about our financial institution partners can also affect our business and results of operations in a material manner if we rely on them or if customers and financial institution partners associate our Company with them.

        Our brand and reputation are integral to our online acquisition of customers, and we intend to invest in marketing and brand promoting efforts, especially in connection with the growth of our multi-channel mobile application platform and introduction of new services. The success of our marketing efforts and user experience on our mobile application platform are integral to our ability to attract new and retain repeat customers. If our current marketing efforts and channels are less effective or inaccessible to us, or if the cost of such channels significantly increases or we cannot penetrate the market with new channels, we may not be able to maintain our reputation and increase recognition of our brand without incurring significant expenditures to sustain or grow our existing customer base. If we are unable to maintain our reputation and increase recognition of our brand without incurring significant expenditures, our market share could diminish or we could experience a lower growth rate than we anticipated, which would harm our business, financial condition and results of operations.

         If our current services and solutions are insufficiently attractive to our prospective and existing customers and our financial institution partners, become obsolete or fail to satisfy the demands of prospective and existing customers or financial institution partners, our business and results of operations will be materially affected.

        Our services and solutions require significant expense and resources to develop and market. They also may not receive sufficient market acceptance for a variety of reasons:

    our estimate of market demand may not be accurate so that we may not be able to launch services and solutions to align with and meet specific market demands or there may not be sufficient market demand for the services and solutions;

    changes on our mobile application platform, including the introduction of new services and functions, may alter the demand of existing services by existing customers;

    defects, errors or failures on our mobile application platform;

    any negative publicity or news about our services on our mobile application platform;

    delays in launching any new services and solutions; and

    competing services and solutions by our competitors.

        If our current services and solutions do not attain sufficient market acceptance, become obsolete or otherwise fail to satisfy the demands of prospective and existing customers and our financial institution partners, we may be unable to compete in the intense consumer finance industry and our target market. Our market share may decline and negatively affect our business and results of operations.

         We may fail to develop and improve our mobile application platform and services and solutions.

        The attractiveness of our mobile application platform and services to prospective and existing customers and our technology-based solutions to financial institution partners depend on our ability to innovate. To remain competitive, we intend to expand our offering of services and solutions to prospective and existing customers to cater to their different financing needs. We also intend to expand our customer base to meet the different needs of financial institution partners and offer different risk-based returns to our financial institution partners. We also plan to enhance the capabilities of our online mobile application platform to incorporate new features and optimize the customer experience. We intend to continue to enhance and improve our data analytical capabilities, platform interface and technology infrastructure.

37


Table of Contents

        These efforts may require us to develop internally, or to license, increasingly complex technologies. In addition, new content, services, solutions and technologies developed and introduced by competitors could render our content, services and solutions obsolete if we are unable to update or modify our own technology. Developing and integrating new content, services, solutions and technologies into our existing platform and infrastructure could be expensive and time-consuming. Furthermore, any new features and functions may not achieve market acceptance. We may not succeed in incorporating new technologies, or may incur substantial expenses in order to do so. If we fail to develop, introduce, acquire or incorporate new features, functions or technologies effectively and on a timely basis, our business, financial performance and prospects could be materially and adversely affected.

         If we are unable to protect the confidential information of our users and adapt to the regulatory framework as to protection of such information, our business, reputation and operations may be adversely affected.

        Our mobile application platform collects, stores and processes certain personal and other sensitive data from our users. The massive data that we have processed and stored makes us or third-party service providers who host our servers a target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. Outside parties may also attempt to fraudulently induce employees or users to disclose sensitive information in order to gain access to our data or our users' data. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our platform could cause confidential users information to be stolen and used for criminal purposes. As personally identifiable and other confidential information is increasingly subject to legislation and regulations in numerous domestic and international jurisdictions, any inability to protect confidential information of our users and funding partners could result in additional cost and liability for us, damage our reputation, inhibit the use of our platform and harm our business.

        We also face indirect technology, cybersecurity and operational risks relating to the third parties upon whom we rely to facilitate or enable our business activities, including, among others, our financial institution partners, our third-party financial service providers and our third-party online payment service providers who manage accounts for certain customer funds. As a result of increasing consolidation and interdependence of technology systems, a technology failure, cyber-attack or other information or security breach that significantly compromises the systems of one entity could have a material impact on its counterparties. Although our agreements with our financial institution partners, our third-party financial service providers and our third-party payment service providers provide that each party is responsible for the cybersecurity of its own systems, any cyber-attack, computer viruses, physical or electronic break-ins or similar disruptions of such partners or providers could, among other things, adversely affect our ability to serve our customers, and could even result in misappropriation of funds of our customers and financial institution partners. If that were to occur, we, our financial institution partners, our recommendation service provider and third-party payment service providers could be held liable to customers and financial institution partners who suffer losses from the misappropriation.

        Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with customers and financial institution partners could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.

38


Table of Contents

        The PRC Constitution states that PRC laws protect the freedom and privacy of communications of citizens and prohibit infringement of such basic rights, and the PRC Contract Law prohibits contracting parties from disclosing or misusing the trade secrets of the other party. Further, companies or their employees who illegally trade or disclose customer data may face criminal charges. Although the definition and scope of "privacy" and "trade secret" remain relatively ambiguous under PRC law, growing concerns about individual privacy and the collection, distribution and use of information about individuals have led to national and local regulations that could increase our expenses. As a result of the uncertainty, there is no assurance that our use of customer data complies with these regulations. In addition, the PRC Network Security Law, effective on June 1, 2017, stipulates that a network operator, including internet information services providers among others, must adopt technical measures and other necessary measures in accordance with applicable laws and regulations as well as compulsory national and industrial standards to safeguard the safety and stability of network operations, effectively respond to network security incidents, prevent illegal and criminal activities, and maintain the integrity, confidentiality and availability of network data. While we have adopted comprehensive measures to comply with the applicable laws, regulations and standards, there can be no assurance that such measures will be effective. Furthermore, there is uncertainty as to the interpretation and application of such laws which may be interpreted and applied in a manner inconsistent with our current policies and practices or require changes to the features of our system or the methods and scope of our information collection and usage. We cannot assure you that our existing user information collection, usage and protection systems and technical measures will be considered sufficient and/or compliant under applicable laws and regulations. If we are unable to address any information protection concerns, or to comply with the then applicable laws and regulations relating to data collection, usage and protection, we would be subject to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, shutdown of our platform or even criminal liability and our business, financial condition and results of operations would be adversely affected. See "Regulations—Regulations Relating to Internet Information Security and Privacy Protection" for further details.

         We face intense competition and, if we do not compete effectively, our results of operations could be harmed.

        The online consumer finance industry in China is highly competitive and we compete with other online consumer finance service providers, in particular, other credit card installment loan providers. Our competitors may operate different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to consumer demand and new regulatory, technological and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their offerings. Our competitors may also have longer operating history, more extensive customer bases or financial institution partnerships, greater brand recognition and brand loyalty and broader relationships with service providers than us. Additionally, a current or potential competitor may acquire, or form a strategic alliance with, one or more of our competitors. Our competitors may be better at developing new services, offering more attractive fees, responding more quickly to new technologies and undertaking more extensive and effective marketing campaigns. Furthermore, although the barriers to entry are high in the segment of the online consumer finance industry in which we operate, more participants may enter this market and increase the level of competition. We anticipate that more established Internet, technology and financial services companies that possess large, existing user bases, substantial financial resources and established distribution channels may also enter the market in the future. In response to competition and in order to grow or maintain the amount of transactions facilitated to customers, we may have to charge a lower service fee to our financial institution partners so that they would provide a lower interest rate to our customers, which could materially and adversely affect our business and results of operations. If we are unable to compete with

39


Table of Contents

such companies and meet the need for innovation in our industry, the demand for our credit services and solutions could stagnate or substantially decline, which could harm our business and results of operations.

        With respect to financial institution partners, we compete with other loan facilitation and origination services and platforms, and also other investment products and asset classes, such as equities, bonds, investment trust products, insurance products, bank savings accounts and real estate. If a substantial number of our institution financial institution partners choose other loan facilitation and origination services or platforms or investment alternatives, our business, financial condition and results of operations could be materially and adversely affected.

         We incurred net losses in the past and may incur net losses in the future.

        We had net losses of RMB94.0 million and RMB67.0 million (US$10.1 million) in 2016 and 2017, respectively. We had net losses of RMB48.0 million for the six months ended June 30, 2017 as compared to net profit of RMB25.6 million (US$3.9 million) for the six months ended June 30, 2018. We had accumulated deficits of RMB114.4 million, RMB189.3 million (US$28.6 million) and RMB178.5 million (US$27.0 million) as of December 31, 2016 and 2017 and June 30, 2018, respectively. We cannot assure you that we will be able to continue to generate net income in the future. We anticipate that our operating cost and expenses will increase in the foreseeable future as we continue to grow our business, attract customers and financial institution partners and further enhance and develop our services and solutions, enhance our risk management capabilities and increase brand recognition. These efforts may prove more costly than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. There are other factors that could negatively affect our financial condition. For example, the delinquency or default rates of the transactions facilitated may be higher than expected, which may lead to lower than expected service fees and/or interest income and additional expenses and/or interest expense. Furthermore, we adopted an equity incentive plan in June 2018 which was subsequently amended and restated in August 2018, and may adopt other share incentive plans in the future, which will result in significant share-based compensation expenses to us. We generate a substantial majority of our total revenues from service fees we charge our financial institution partners. Any material decrease in our service fees would have a substantial impact on our margin. As a result of the foregoing and other factors, our net income margins may decline or we may incur additional net losses in the future and may not be able to maintain profitability on a quarterly or annual basis.

         We do not prohibit our customers from incurring other debt or impose financial covenants on customers during the term of the loan, which will increase the risk of non-payment on our loans.

        Subsequent to our assessment, a prospective customer may:

    become delinquent in payment obligations;

    default on a pre-existing debt obligation;

    commit to further indebtedness; and/or

    experience events bringing about adverse financial effects.

        We do not prohibit our customers from incurring additional indebtedness, nor do we impose any financial covenants on the customers during the term of the loan. Further we have no means to independently determine whether a prospective customer has outstanding loans on other consumer finance platforms. We are faced with the risk that customers borrow money from our mobile application platform to pay off loans on other consumer finance platforms, creating a snowball effect of debt. Any additional indebtedness may impair the customer's ability to observe his or her payment obligations on the transactions we facilitated. As overall consumer indebtedness and/or debt-to-income

40


Table of Contents

ratio increase in China, this phenomenon may exacerbate any increases in delinquency and default rate. If a customer becomes insolvent or bankrupt or otherwise run into financial distress, any unsecured loan (including those obtained through our mobile application platform) will rank pari passu to each other and the customer may cherry-pick among his or her creditors and our financial institution partners may suffer losses. Our financial institution partners may lose their confidence in us and our reputation and business may be adversely affected.

         Fluctuations in interest rates could negatively affect the amount of transactions facilitated by us and cost of capital for funds provided to customers.

        All credit facilitated by us are under service fee arrangements. If prevailing market interest rates rise, the cost of capital for funds for our financial institution partners will increase. As a result, our financial institution partners may increase the interest rates they provide to our users or may force us to reduce the service fees we charge. If our users decide not to utilize our credit services because of such an increase in interest rates, our ability to retain existing customers, attract or engage prospective customers as well as our competitive position may be severely limited. If we are forced to reduce our service fees, our business, results of operations, liquidity, profitability and financial condition would be adversely affected. We cannot assure you that we will be able to effectively manage such interest risk at all times. If we are unable to effectively manage such an increase, our business, profitability, results of operations, liquidity and financial condition could be materially and adversely affected. If prevailing market interest rates decrease and our financial institution partners fail to adjust the interest rate they offer to our users accordingly, prospective customers may take advantage of the lower interest rates offered by other parties. As a result, any fluctuation in the interest rate environment may discourage users from making credit applications on our platform or utilize their approved credit, which may adversely affect our business, results of operations, liquidity, profitability and financial condition.

         Misconduct and errors by our employees and our third-party service providers could cause a material adverse effect on our business and reputation. In particular, any failure by us, financial institution partners or our third-party service providers to comply with applicable anti-money laundering and anti-terrorism financing laws and regulations could damage our reputation.

        Our employees and third-party service providers are integral to our business operations, as they handle and process a large number of increasingly complex and differentiated loan transactions which include confidential information. If any such information were leaked to unintended recipients due to human error, theft, malicious sabotage or fraudulent manipulation, we may be subject to liability for loss of such information. Further, if any of our employees or third-party service providers absconded with our proprietary data or know-how in order to compete with us, our competitive position may be materially and adversely affected.

        Any misappropriation fraudulent misuse of funds by any of our employees or third-party service providers in contravention of our protocols and policies may lead to regulatory and disciplinary proceedings involving us. We may be perceived to have facilitated or participated in the misappropriation or fraudulent misuse of funds and we could be subject to liability, damages, penalties and suffer reputational damage. It is impossible to completely identify and eradicate all risks of misconduct or human errors, and our precautionary measures may not be able to effectively detect and prevent such risks from happening.

        We have adopted various policies and procedures, such as internal controls and "know-your-customer" procedures, for anti-money laundering purposes. The Internet Finance Guidelines purport, among other things, to require internet finance service providers, to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public security department

41


Table of Contents

and judicial authority in investigations and proceedings in relation to anti-money laundering matters. There is no assurance that our anti-money laundering policies and procedures will protect us from being exploited for money laundering purposes or that we will be deemed to be in compliance with applicable anti-money laundering implementing rules, if and when adopted, given that our anti-money laundering obligations in the Internet Finance Guidelines and whether online consumer finance service providers like us must abide by the rules and procedures set forth in the PRC Anti-money Laundering Law that are applicable to non-financial institutions with anti-money laundering obligations are not specified. Any new requirement under anti-money laundering or anti-terrorism financing laws could increase our costs, and may expose us to potential sanctions if we fail to comply.

        In addition, we rely on our financial institution partners and our third-party service providers, in particular payment companies that handle the transfer of funds between customers and lenders, to have their own appropriate anti-money laundering and anti-terrorism financing policies and procedures. Certain of our financial institution partners and the payment companies are subject to anti-money laundering obligations under applicable anti-money laundering and anti-terrorism financing laws and regulations and are regulated in that respect by the People's Bank of China. If any of our financial institution partners or our third-party service providers fail to comply with applicable anti-money laundering and anti-terrorism financing laws and regulations, our reputation could suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our business, financial condition and results of operations. Any negative perception of the industry, such as those that arise from any failure of other consumer finance platforms to detect or prevent money laundering and terrorism financing activities, could compromise our image or undermine the trust and credibility we have established.

        If any of the foregoing were to occur, our reputation, business, financial condition and results of operations might be materially and adversely affected. Our ability to attract new and retain existing customers and financial institution partners and operate our online mobile application platform as an ongoing concern may be impaired.

         If we do not find available sources of liquidity for our capital and financing needs or there is a mismatch between our cash flows and our cash needs, our business and operations may be materially and adversely affected.

        We may experience unexpected changes in business conditions, creating additional capital and financing needs. We believe that our current cash and cash equivalents and anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least 12 months following this offering. However, we may need additional sources of liquidity if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or otherwise. If our available cash and cash equivalents on hand are insufficient to cover our expected cash requirements, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in dilution to our shareholders. We cannot guarantee that financing will be available to us under terms acceptable to us, or at all. Furthermore, we depend on our service fees as our primary cash flow to fund our business. If our service fees are otherwise delayed or we are unable to receive our service fees from our financial institution partners, there could be a mismatch between our cash flow and our cash requirements, which could materially and adversely affect our financial position and liquidity.

        The incurrence of indebtedness would result in increased fixed obligations and could result in covenants restricting our operations. It could further lead to a number of risks that could adversely affect our operations or financial conditions:

    default and foreclosure on our assets if our operating revenue is insufficient to repay debt obligations;

42


Table of Contents

    acceleration of obligations to repay the indebtedness (or other outstanding indebtedness), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

    our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

    diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and

    creating potential limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate.

         If our internal controls over financial reporting are insufficient or ineffective, we may not be able to accurately report our financial results or prevent fraud.

        Before this offering, we were a private company with limited resources. Our internal controls and procedures, especially over financial reporting, may not be able to sufficiently identify any material weaknesses and control deficiencies that could lead to inaccuracies in our financial statements. Our ability to comply with applicable financial reporting requirements and regulatory filings in a timely manner may be impaired. Our independent registered public accounting firm has not conducted an attestation of our internal control over financial reporting. However, in connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2016 and 2017, we and our independent registered public accounting firm identified one "material weakness" in our internal control over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

        The material weakness identified related to our lack of sufficient accounting and financial reporting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to (i) formalize and carry out key controls over financial reporting, (ii) properly address complex accounting issues and (iii) prepare and review consolidated financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements. Subsequent testing by us or our independent registered public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses.

        Upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of this Act will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2019. However, as an "emerging growth company" as defined in the JOBS Act, we may choose to not comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act as to the effectiveness of our internal controls over financial reporting until such time that we cease to be an "emerging growth company," although we will still be required to implement and maintain internal control over financial reporting and include the management assessment in our annual reports under Section 404. To comply with Section 404, we may incur substantial costs, expend significant management time on compliance-related issues and hire additional accounting, financial and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed

43


Table of Contents

to be material weaknesses, we could be subject to sanctions or investigations by the Securities and Exchange Commission (SEC) or other regulatory authorities, which would require additional financial and management resources. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material adverse effect on our business and operating results, and cause a decline in the price of our ADSs.

         We may not be able to completely prevent fraudulent activity on our mobile application platform, which may have a material adverse effect on our brand, reputation, business and results of operations.

        Customers supply a variety of information to us through our mobile application platform. We do not verify all the information we receive from customers, and such information may be inaccurate, incomplete or fraudulently provided. For example, we often do not verify a customer's home ownership status or intended use of loan proceeds, and the customer may use loan proceeds for other purposes with increased risk than as originally provided. Moreover, inaccurate, misleading or incomplete customer information could also potentially subject us to liability as an intermediary under the PRC Contract Law. See "Regulations—Regulations Relating to Online Consumer Lending—Regulations on Loans between Individuals."

        We collect third-party data from and cross-check information gathered against the PBOC credit report analysis output provided by our financial institution partners and data from mobile application platforms, credit bureaus, data vendors, industry forums and big data analytics companies. If the data points from which our credit assessment system derives the credit score and grade are inaccurate, incomplete, fraudulently provided or outdated, as we do not have the means to verify the third party data we obtain, the outcome may not accurately reflect the credit risk of the customer. Such inaccurate, incomplete or fraudulently provided customer credit information could adversely affect the effectiveness of our control over our default rates, which could in turn harm our reputation and materially and adversely affect our business, financial condition and results of operations.

        Fraudulent activity on our online mobile application platform, including organized fraud schemes and impostor customers fraudulently inducing lenders to lend capital, could lead to regulatory intervention, cause a material damage to our brand, reputation and market share, and require us to take extra anti-fraud measures. The occurrence of fraudulent activity will cause us to incur costs and divert management attention and our financial institution partners and third-party financial service providers could also seek to terminate their relationships with us. If any of the foregoing were to occur, our business and results of operations could be affected. Although we have not experienced any material business or reputational harm as a result of fraudulent activities in the past, we cannot assure you that we will not experience any fraudulent activities in the future which may cause harm to our business or reputation. We believe our risk management system has stringent controls and checks in place to minimize the incidence of fraud on our mobile application platform. However, we have limited resources, and our technology and risk management system may not be able to completely prevent and detect all potential fraudulent activities.

         If the Internet infrastructure or telecommunications network is affected by any disruptions including natural and man-made disasters such as fires, power outages, floods, strikes, terrorism and other catastrophic events causing disruptions, our online mobile application platform will be adversely affected.

        We heavily rely on the Internet infrastructure and telecommunications network in China for our operations and the smooth running of our online mobile application platform. A significant event or disaster, natural or man-made, including among others, fires, power outages, floods, strikes, terrorist attacks, coups d'etat or other catastrophic events or problems, may adversely affect our servers, data centers, and our offices. Our business may be disrupted and we may lose critical data or experience interruptions, delays and compromising of our business operations and services. Our financial institution partners, our third-party financial service providers and our other third party data suppliers

44


Table of Contents

and service providers, including in particular our third-party payment agent, may also be similarly affected and may not be able to provide our customers and us with the support needed. In particular, if our disaster recovery plans prove to be ineffective or inadequate, the aforementioned risks will be further worsened. We do not currently serve network traffic equally from each of our data centers. If our primary data center shuts down, there will be a period of time that our loan products or services, or certain of our loan products or services, will remain inaccessible to the users on our mobile application platform, such users may experience severe issues accessing the loan products and services.

        Our operations, customer service, reputation and ability to attract new and retain customers depend on the reliable and satisfactory performance of our technology and network infrastructure. Much of our system hardware and "cloud" system we are developing is hosted in facilities located in Shenzhen that are partially owned by us and operated by our third-party vendors. If these third party vendors fail to protect their and our systems in their facilities from any of the aforementioned disruptions and there is a lapse of service or damage to our system hardware, we may experience interruptions in our service and may have to incur extra costs for replacement of facilities.

        Furthermore, almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. We primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China's internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage.

        In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.

         We may be required to obtain additional value-added telecommunication business licenses.

        PRC regulations impose sanctions for engaging in internet information services of a commercial nature without having obtained an internet content provider license, or the ICP license, and sanctions for engaging in the operation of online data processing and transaction processing without having obtained a VATS license for online data processing and transaction processing, or ODPTP license (ICP and ODPTP are both sub-sets of value-added telecommunication business). These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites and mobile apps may be ordered to cease operation. Nevertheless, the interpretation of such regulations and PRC regulatory authorities' enforcement of such regulations in the context of online consumer finance industry remains uncertain, it is unclear whether online consumer finance service provider like us are required to obtain an ICP license or ODPTP license, or any other kind of value-added telecommunication business licenses. We currently conduct our business through our variable interest entity Samoyed Internet Finance, and Samoyed Internet Finance has not obtained an ICP license to date. Our variable interest entity Wuyu Technologies has obtained an ICP license. We have not obtained any ODPTP license to date. Given the uncertainty relating to the interpretation of the applicable laws and regulations and the evolving regulatory environment of the consumer finance industry and value-added telecommunication business, we cannot rule out the possibility that the PRC communication administration authority or other government authorities will explicitly require Samoyed

45


Table of Contents

Internet Finance to obtain an ICP license, or require any of our consolidated VIEs or subsidiaries of our consolidated VIEs to obtain ODPTP licenses or other value-added telecommunication business licenses, or issue new regulatory requirements to institute a new licensing regime for our industry. If such value-added telecommunication business licenses are clearly required in the future, or a new license regime is introduced or new regulatory rules are promulgated, we cannot assure you that we would be able to obtain any required license or other regulatory approvals in a timely manner, or at all, which would subject us to the sanctions described above or other sanctions as stipulated in the new regulatory rules, and materially and adversely affect our business and impede our ability to continue our operations.

         Our loan facilitation services may constitute provision of intermediary service, and our agreements with financial institution partners and customers may be deemed as intermediation contracts under the PRC Contract Law.

        Under the PRC Contract Law, if an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results in harm to the client's interests, the intermediary may not claim for service fees and is liable for the damages caused. See "Regulations—Regulations Related to Loans and Intermediation." Therefore, if we fail to provide material information to financial institution partners, or if we fail to identify false information received from customers or others and in turn provide such information to financial institution partners, and in either case if we are also found to be at fault, due to failure or deemed failure to exercise proper care, such as to conduct adequate information verification or supervision of our employees, or to accurately detect and prevent fraud due to ineffectiveness of our fraud detection tools, we could be held liable for damages caused to financial institution partners as an intermediary pursuant to the PRC Contract Law. In addition, if we fail to complete our obligations under the agreements with financial institution partners and customers, we could also be held liable for damages caused to customers or financial institution partners pursuant to the PRC Contract Law. On the other hand, we do not assume any liability solely on the basis of failure to correctly assign a credit limit to a particular customer in the process of facilitating transactions, as long as we do not conceal any material fact intentionally or provide false information, and are not found to be at fault otherwise. However, due to the lack of detailed regulations and guidance in the area of online consumer finance platforms and the possibility that the PRC government authority may promulgate new laws and regulations regulating online consumer finance platforms in the future, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations for the online consumer finance industry, and there can be no assurance that the PRC government authority will ultimately take a view that is consistent with ours.

         We may be held liable for information or content displayed on, retrieved from or linked to our mobile application platform, which may materially and adversely affect our business and operating results.

        We offer consumer finance services on our mobile application platform, which are regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the APP Provisions, promulgated by the Cyberspace Administration of China, or the CAC, in June 2016 and effective in August 2016. According to the APP Provisions, the providers of mobile application platforms shall not create, copy, publish or distribute information and content that is prohibited by laws and regulations. We have implemented internal control procedures screening the information and content on our mobile application platforms to ensure their compliance with the APP Provisions. However, we cannot assure that all the information or content displayed on, retrieved from or linked to our mobile application platforms complies with the requirements of the APP Provisions at all times. If our mobile application platforms were found to be violating the APP Provisions, we may be subject to relevant penalties, including warning, service suspension or removal of our mobile application platforms from the relevant mobile application platform store, which may materially and adversely affect our business and operating results.

46


Table of Contents

         We may be unable to protect our proprietary intellectual property rights from unauthorized use, such that our brand, reputation and business may be negatively impacted.

        Our protection of our intellectual property is crucial to our success and future growth, as we rely on a combination of copyrights, trade secrets, trademarks and other rights to protect our know-how, proprietary technology, processes and other intellectual property. The protective measures we take may not be sufficient to prevent theft, infringement or unauthorized use. We may not be fully aware of other parties' intellectual property rights involved in our systems, applications and technology. If the proprietary technologies that are crucial for our credit scoring models, credit assessment system, risk management system and our mobile application platform are infringed or used without authority by our competitors or other parties, our competitive advantage could be adversely reduced. We may have to bring lengthy and costly litigation and take time-consuming measures in order to protect our intellectual property rights, diverting our management's attention from our business operation. If any of the foregoing were to occur, our brand, reputation and business may be negatively impacted.

         Third parties may engage us in lengthy and expensive litigation, which may disrupt and affect our business.

        In our intensely competitive industry, we may be challenged by third parties, including competitors as well as other entities or individuals. We may have to incur significant time and costs in dealing with any claims or litigation, and if they are successful, we may be subject to substantial damages, royalty payments, restrictions from conducting our business and other stringent requirements unfavorable to our business and operations. We may also be required to indemnify other parties or pay settlement costs, and to obtain licenses, modify applications or refund fees, each of which may be expensive and time consuming. Such processes may create a distraction for our management which could affect our business operations.

         We compete for talented and quality employees, and failure to attract and retain them may adversely affect our business and prevent us from achieving our intended level of growth.

        Competition for our employees including systems engineers, financial officers and marketing professionals is intense. Our business and success rely on the efforts and standard of work of our employees. If we are unable to attract, motivate and retain talented and trained employees, or if we are unable to continue to provide attractive compensation packages, our business and operations may be adversely affected and our intended levels and rates of growth may be impended.

        We invest significant time and expense in the training and development of our employees. Failure to retain our existing employees will incur further significant costs to find suitable replacements and a duplication of effort for their training, which may affect our operations and our quality of service to customers may be compromised, resulting in a material adverse effect on our business and results of operations.

         We do not have business insurance coverage.

        Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

47


Table of Contents

         Customer growth and activity on mobile devices depend upon the effective use of mobile operating systems, networks and standards, which we do not control.

        Our credit services are offered through mobile apps. As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for these new devices and platforms, and we may need to devote significant resources to the development, support and maintenance of such applications. In addition, our future growth and our results of operations could suffer if we experience difficulties in the future in integrating our credit services into mobile devices or if problems arise with our relationships with providers of mobile operating systems or mobile app stores, or if we face increased costs to distribute or have customers utilize our credit services on mobile devices. We are further dependent on the interoperability of providing our credit services on popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the accessibility of our credit services or give preferential treatment to competing products could adversely affect the usability of our credit services on mobile devices. In the event that it is more difficult for our customers to access and utilize our credit services on their mobile devices, or if our users choose not to access or utilize our credit services on their mobile devices or to use mobile operating systems that do not offer access to our credit services, our user growth could be harmed and our business, financial condition and operating results may be adversely affected.

         From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results.

        We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our credit services and solutions and better serve customers and enhance our competitive position. These transactions could be material to our financial condition and results of operations, if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, which may result in investment losses.

        Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:

    difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;

    inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits including the failure to successfully further develop the acquired technology;

    difficulties in retaining, training, motivating and integrating key personnel;

    diversion of management's time and resources from our normal daily operations and potential disruptions to our ongoing businesses;

    difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;

    difficulties in retaining relationships with customers, financial institution partners, employees and other partners of the acquired business;

    risks of entering markets in which we have limited or no prior experience;

48


Table of Contents

    regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business;

    assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;

    liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and

    unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.

        We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits.

         Certain data and information in this prospectus were obtained from external third parties and we have not independently identified them.

        In this prospectus we have utilized data and information from external sources including various third parties comprising government sources and private entities such as industry consultant Oliver Wyman. Such external sources of statistical data include projections based on numerous assumptions. China's financial services market, especially the credit card repayment segment, and the overall credit industry, may not grow at the projected rate provided by these external sources, or at all. The performance of the overall industry and segment affects our business and market price of our ADSs, especially if they fail to grow at the projected rate. Further, the new and constantly evolving environment of the industry and market results in significant uncertainties, and the projections or estimates about the growth of the market in which we operate in should be considered in this context. If any of the assumptions underlying the market data prove to be incorrect, discrepancies between the projections and actual results may emerge.

        We have not independently verified data and information obtained from third party external sources, and the method of collection and methodologies employed by such third parties may differ from ours. In addition, these industry reports and publications generally include a disclaimer that the information therein is believed to be reliable but which accuracy and completeness cannot be guaranteed.

         Broader macro, political and socio-economic factors affecting market conditions can materially and adversely affect our business and operating results.

        General economic, macro, political and socio-economic factors beyond our control may deter users' interest in seeking loans through our mobile application platform. Such factors include the general interest rate ecosystem, unemployment rates, residential home values and availability of other investment opportunities. If any of these risk factors should materialize, the volume of loans facilitated on our mobile application platform will necessarily decline and our revenues and operating results may be adversely affected.

        We cannot guarantee that economic conditions will remain favorable for our business or industry and that demand and supply for consumer loans such as those we primarily facilitate over our mobile application platform will continue to be met at current levels. If demand or supply reduces, or if the default rate increases, our growth and revenue will be negatively impacted.

49


Table of Contents

         We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

        We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology mobile application platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affecting our ability to provide our services and solutions.

        Our business could also be adversely affected by the effects of Ebola virus disease, Zika virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having Ebola virus disease, Zika virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or any other epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general.

        Our headquarters is located in Shenzhen and Shanghai, where most of our directors and management and a significant portion of our employees currently reside. Most of our system hardware and back-up systems are hosted in leased facilities located in Shenzhen. Consequently, we are highly susceptible to factors adversely affecting Shenzhen, Shanghai and Beijing. If any of the abovementioned natural disasters, health epidemics or other outbreaks were to occur in Shenzhen, Shanghai or Beijing, our operation may experience material disruptions, such as temporary closure of our offices and suspension of services, which may materially and adversely affect our business, financial condition and results of operations.

RISKS RELATED TO OUR CORPORATE STRUCTURE

         If the PRC government deems that the contractual arrangements in relation to our consolidated VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

        The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically, foreign investors are not allowed to own more than a 50% equity interest in any PRC company engaging in value-added telecommunications businesses, with certain exceptions relating to online retail and mobile commerce which does not apply to us. The primary foreign investor must also have experience and a good track record in providing value-added telecommunications services, or VATS, overseas.

        Because we are an exempted company incorporated in the Cayman Islands, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly-owned PRC subsidiary, Shenzhen Samoyed Information Technology Co., Ltd., or Samoyed Information Technology, is a foreign-invested enterprise, or an FIE. To comply with PRC laws and regulations, we conduct our business in China through Shenzhen Wuyu Technologies Services Co., Ltd., or Wuyu Technologies, and Shenzhen Samoyed Internet Finance Service Co., Ltd., or Samoyed Internet Finance, our consolidated VIEs, and their subsidiaries. Samoyed Information Technology has entered into a series of contractual arrangements with our consolidated VIEs and their shareholders. In addition, pursuant to the resolutions of all shareholders of Samoyed Holding Limited and the resolutions of the board of directors of Samoyed Holding Limited, the board of directors of Samoyed Holding Limited or any officer authorized by such board shall cause Samoyed Information Technology to exercise Samoyed Information Technology's rights under the power of attorney agreements entered into among Samoyed

50


Table of Contents

Information Technology, our consolidated VIEs and the shareholders of our consolidated VIEs and Samoyed Information Technology's rights under the exclusive option agreements between Samoyed Information Technology and our consolidated VIEs. As a result of these resolutions and the provision of unlimited financial support from the Company to our consolidated VIEs, Samoyed Holding Limited has been determined to be most closely associated with our consolidated VIEs within the group of related parties and was considered to be the primary beneficiary of our consolidated VIEs and its subsidiaries. For a description of these contractual arrangements, see "Our History and Corporate Structure—Contractual Arrangements with Consolidated VIEs and Their Shareholders."

        We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our wholly-owned PRC subsidiary, our consolidated VIEs and their shareholders is valid, binding and enforceable in accordance with its terms, except that the pledges in respect of Samoyed Internet Finance's equity interests would not be deemed validly created until they are registered with competent local office of the administration for market regulation. We expect to complete such registration prior to the completion of this offering. However, as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry, there can be no assurance that the PRC government authorities, such as the Ministry of Commerce, or the MOFCOM, or the MIIT, or other authorities that regulate online consumer finance platforms and other participants in the telecommunications industry, would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.

        If our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIEs and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

    revoking our business and operating licenses;

    levying fines on us;

    confiscating any of our income that they deem to be obtained through illegal operations;

    shutting down our services;

    discontinuing or restricting our operations in China;

    imposing conditions or requirements with which we may not be able to comply;

    requiring us to change our corporate structure and contractual arrangements;

    restricting or prohibiting our use of the proceeds from overseas offering to finance our PRC consolidated VIEs' business and operations; and

    taking other regulatory or enforcement actions that could be harmful to our business.

        Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. See

51


Table of Contents

"—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, and its enactment may materially and adversely affect our business and financial condition." Occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations. In addition, if the imposition of any of these penalties or requirement to restructure our corporate structure causes us to lose the rights to direct the activities of our consolidated VIEs or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIEs in our consolidated financial statements. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our wholly-owned subsidiaries in China or our consolidated VIEs or their subsidiaries. See "Our History and Corporate Structure—Contractual Arrangements with Consolidated VIEs and Their Shareholders."

         Our contractual arrangements with our consolidated VIEs may result in adverse tax consequences to us.

        We could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with our consolidated VIEs were not made on an arm's length basis and adjust our income and expenses for PRC tax purposes by requiring a transfer pricing adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the tax liabilities of our consolidated VIEs without reducing the tax liability of our subsidiaries, which could further result in late payment fees and other penalties to our consolidated VIEs for underpaid taxes; or (ii) limiting the ability of our consolidated VIEs to obtain or maintain preferential tax treatments and other financial incentives.

         We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our business, which may not be as effective as direct ownership in providing operational control and otherwise have a material adverse effect as to our business.

        We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our business. For a description of these contractual arrangements, see "Our History and Corporate Structure—Contractual Arrangements with Consolidated VIEs and Their Shareholders." All of our revenue are attributed to our consolidated VIEs. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by our consolidated VIEs is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in our consolidated VIEs, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.

        All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over our consolidated VIEs, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected. See "—Risks Relating to Doing Business in China—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations."

52


Table of Contents

         The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

        In connection with our operations in China, we rely on the shareholders of our consolidated VIEs to abide by the obligations under such contractual arrangements. The interests of these shareholders in their individual capacities as the shareholders of our consolidated VIEs may differ from the interests of our company as a whole, as what is in the best interests of our consolidated VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or those conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause our consolidated VIEs and their subsidiaries to breach or refuse to renew the existing contractual arrangements with us.

        Currently, we do not have arrangements to address potential conflicts of interest the shareholders of our consolidated VIEs may encounter, on one hand, and as a beneficial owner of our company, on the other hand. We, however, could, at all times, exercise our option under the exclusive call option agreement to cause them to transfer all of their equity ownership in our consolidated VIEs to a PRC entity or individual designated by us as permitted by the then applicable PRC laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of our consolidated VIEs as provided under the power of attorney agreements, directly appoint new directors of our consolidated VIEs. We rely on the shareholders of our consolidated VIEs to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our consolidated VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

         PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans to our PRC subsidiary and our consolidated VIEs, or to make additional capital contributions to our PRC subsidiary.

        In utilizing the proceeds of this offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiary are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China.

        SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have

53


Table of Contents

been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

        Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to any of our consolidated VIEs and their subsidiaries, each a PRC domestic company. Meanwhile, we are not likely to finance the activities of our consolidated VIEs and their subsidiaries by means of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by our consolidated VIEs and their subsidiaries.

        In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or any consolidated variable interest entity or future capital contributions by us to our PRC subsidiary. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiary or consolidated VIEs and their subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency, including the proceeds we received from this offering, and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

         If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations may be materially and adversely affected.

        Under PRC law, legal documents for corporate transactions, including agreements and contracts such as the leases and sales contracts that our business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the State Administration for Market Regulation, formerly known as the State Administration for Industry and Commerce, or the SAIC. We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.

        We have three major types of chops—corporate chops, human resources chops and finance chops. We use corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use human resources chops for documents relating to human resources. We use finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops and contract chops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiaries and consolidated VIEs are

54


Table of Contents

generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our subsidiaries and consolidated VIEs have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.

        In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the designated key employees of our legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although we have approval procedures in place and monitor our key employees, including the designated legal representatives of our subsidiaries and consolidated VIEs, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiaries and consolidated VIEs with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative's misconduct. If any of the designated legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations, and our business and operations may be materially and adversely affected.

RISKS RELATED TO PRC LAWS REGULATING OUR BUSINESS AND INDUSTRY

         Changes in China's macro-economic, socio-political conditions or government policies could have a material adverse effect on our business and results of operations.

        All of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations are affected significantly by the political, economic and social climate in China and continuously by the economic performance of China as a whole.

        The Chinese economy is unique from the economies of most developed countries in many respects, the more salient aspects include the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still state-owned. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China's economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting the monetary policy, and determining the different levels of treatment accorded to different industries and companies in accordance with national development policy.

        While the Chinese economy has experienced significant growth over the past decades, the growth rate has had sporadic bursts, across geographically and among various sectors ad industries. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic

55


Table of Contents

activity in China, and since 2012, China's economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our services and solutions and materially and adversely affect our business and results of operations.

         A downturn in the Chinese or global economy could reduce the demand for consumer loans and investments, which could materially and adversely affect our business and financial condition.

        The global financial markets have experienced significant disruptions between 2008 and 2009 and the United States, Europe and other economies have experienced periods of recessions. The recovery from the economic downturns of 2008 and 2009 has been uneven and is facing new challenges, including the announcement of Brexit which creates additional global economic uncertainty and the slowdown of the Chinese economic growth since 2012. It is unclear whether the Chinese economy will resume its high growth rate. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China. There have also been concerns over unrest in the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asian countries. Economic conditions in China are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may reduce the demand for consumer loans and investments and have a negative impact on our business, results of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

         Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us.

        The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.

        In particular, PRC laws and regulations concerning the online consumer finance industry are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations, including the regulatory principles raised by the CBIRC, and avoid conducting any activities that may be deemed as illegal fund-raising, forming capital pool or providing guarantee to lenders under the current applicable laws and regulations, the PRC government authority may promulgate new laws and regulations regulating the online consumer finance industry in the future. We cannot assure you that our practices would not be deemed to violate any PRC laws or regulations relating to illegal fund-raising, forming capital pools or the provision of credit enhancement services. Moreover, developments in the online consumer finance industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict online consumer finance platforms like us, which could materially and adversely affect our business and operations. Furthermore, we cannot rule out the possibility that the PRC government will institute a licensing regime covering our industry at some point in the future. If such a licensing regime were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.

        From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government

56


Table of Contents

policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.

         Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, and its enactment may materially and adversely affect our business and financial condition.

        The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the major existing laws and regulations governing foreign investment in China. While the MOFCOM solicited comments on this draft, substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the proposed legislation and the extent of revision to the currently proposed draft. The draft Foreign Investment Law, if enacted as proposed, may materially impact the entire legal framework regulating foreign investments in China.

        Among other things, the draft Foreign Investment Law purports to introduce the principle of "actual control" in determining whether a company is considered a foreign invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but "controlled" by foreign investors will be treated as FIEs, whereas an entity organized in a foreign jurisdiction, but cleared by the MOFCOM as "controlled" by PRC entities and/or citizens, would nonetheless be treated as a PRC domestic entity for investment in the "restriction category" that could appear on any such "negative list." In this connection, "control" is broadly defined in the draft law to cover any of the following summarized categories:

    holding 50% or more of the voting rights or similar rights and interests of the subject entity;

    holding less than 50% of the voting rights or similar rights and interests of the subject entity but having the power to directly or indirectly appoint or otherwise secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to materially influence the board, the shareholders' meeting or other equivalent decision making bodies; or

    having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity's operations, financial, staffing and technology matters.

        Once an entity is determined to be an FIE, and its investment amount exceeds certain thresholds or its business operation falls within a "negative list" purported to be separately issued by the State Council in the future, market entry clearance by the MOFCOM or its local counterparts would be required.

        The VIE structure has been adopted by many PRC-based companies, including us, to conduct business in the industries that are currently subject to foreign investment restrictions in China. Under the draft Foreign Investment Law, VIEs that are controlled via contractual arrangements would also be deemed as FIEs, if they are ultimately "controlled" by foreign investors. For any companies with a VIE structure in an industry category that is in the "restriction category" that could appear on any such "negative list," the existing VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC state owned enterprises or agencies, or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs, in which case, the existing VIE structures will likely to be scrutinized and subject to foreign investment restrictions and approval from the MOFCOM and other supervising authorities such as MIIT. Any operation in the industry category on the "negative list" without market entry clearance may be considered as illegal.

57


Table of Contents

        The MOFCOM completed the solicitation of comments on this draft in February 2015, and indicated in March 2017 that it had revised the proposed Foreign Investment Law based on public comments and was cooperating with the Legislative Affairs Office of the State Council and the Law Committee of National People's Congress for the legislative deliberation of the revised draft Foreign Investment Law. It was reported in November 2017 that after considering the public comments, a draft was produced for further review. However, the revised draft Foreign Investment Law has not been made available to the public, and there are still substantial uncertainties with respect to the enactment timetable and the final content of the Foreign Investment Law.

        There are significant uncertainties as to how the control status of our consolidated VIEs would be determined under the enacted version of the Foreign Investment Law. In addition, it is uncertain whether any of the businesses that we currently operate or plan to operate in the future through our consolidated VIEs would be on the to-be-issued "negative list" and therefore be subject to any foreign investment restrictions or prohibitions. If our consolidated VIEs were deemed as an FIE under the enacted version of the Foreign Investment Law, and any of the businesses that we operate were in the "restricted" category on the to-be-issued "negative list," such determination would materially and adversely affect the value of our ADSs. We also face uncertainties as to whether the enacted version of the Foreign Investment Law and the final "negative list" would mandate further actions, such as MOFCOM market entry clearance, to be completed by companies with existing VIE structure and whether such clearance can be timely obtained, or at all. If we were not considered as ultimately controlled by PRC domestic investors under the enacted version of the Foreign Investment Law, further actions required to be taken by us under the enacted Foreign Investment Law may materially and adversely affect our business and financial condition.

        In addition, our corporate governance practice may be materially impacted and our compliance costs could increase if we were not considered as ultimately controlled by PRC domestic investors under the Foreign Investment Law, if enacted as currently proposed. For instance, the draft Foreign Investment Law as proposed purports to impose stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that would be required for each investment and alteration of investment specifics, an annual report would be mandatory, and large foreign investors meeting certain criteria would be required to report on a quarterly basis. Any company found to be non-compliant with these information-reporting obligations could potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible could be subject to criminal liabilities.

         We rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business and pay any dividends to our shareholders.

        We are a holding company, and we rely on dividends and other distributions on equity paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require Shenzhen Samoyed Information Technology Co., Ltd. to adjust its taxable income under the contractual arrangements it currently has in place with our consolidated variable interest entities in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us. See "—Risks Related to Our Corporate Structure—Our contractual arrangements with our consolidated VIEs may result in adverse tax consequences to us.

        Under PRC laws and regulations, our PRC subsidiary, as a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated after-tax profits as determined in accordance with

58


Table of Contents

PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

        Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See also "—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders."

         PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        Under PRC laws and regulations, we are permitted to utilize the proceeds from this offering to fund our PRC subsidiary by making loans to or additional capital contributions to our PRC subsidiary, subject to applicable government registration and approval requirements.

        Any loans to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC laws, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange.

        We may also decide to finance our PRC subsidiary by means of capital contributions. These capital contributions must be approved by or registered with the MOFCOM or its local counterpart. In addition, SAFE issued a circular in September 2008, SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and unless otherwise provided by law, may not be used for equity investments within the PRC. Although on July 4, 2014, the SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designate areas and such enterprises mainly engaging in investment are allowed to use its RMB capital converted from foreign exchange capitals to make equity investment, our PRC subsidiary is not established within the designated areas. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB fund converted from foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. On June 9, 2016, the SAFE promulgated Circular 16, which expands the application scope from only the capital of the foreign-invested enterprises to the capital, the foreign debt funds and the funds from oversea public offerings. Also, Circular 16 allows enterprises to use their foreign exchange capitals under their capital account as stipulated by the relevant laws and regulations.

59


Table of Contents

In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE's approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of these circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of this offering and the concurrent private placement to fund the establishment of new entities in China by our PRC subsidiary, to invest in or acquire any other PRC companies through our PRC subsidiary, or to establish new variable interest entities in the PRC.

        In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and the concurrent private placement and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

         Fluctuations in exchange rates could have a material adverse effect on the value of your investment.

        Substantially all of our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from this offering. Our reporting currency is the U.S. dollar while the functional currency for our PRC subsidiary and consolidated variable interest entity is RMB. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

        The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. It is difficult to predict any trend of appreciation or depreciation of RMB against the U.S. dollar and when and how the relationship between the RMB and the U.S. dollar may change again. There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from this initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.

        Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our

60


Table of Contents

exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

         Governmental control of currency conversion may limit our ability to utilize our operating revenues effectively, pay dividends to our shareholders and affect the value of your investment.

        The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our operating revenues in RMB. Under our current corporate structure, our company in the Cayman Islands relies on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have, including any dividends to our shareholders. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

         Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

        We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. We have not made adequate employee benefit payments. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

         The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, as amended, and, if required, we cannot predict whether we will be able to obtain such approval.

        The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. In September 2006, the CSRC published a

61


Table of Contents

notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

        Our PRC counsel, Fangda Partners, has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC's approval is not required for the listing and trading of our ADSs on the New York Stock Exchange in the context of this offering, given that: (i) the PRC subsidiary was established by means of direct investment rather than by merger with or acquisition of any PRC domestic companies as defined under the M&A Rules and (ii) no explicit provision in the M&A Rules classifies the respective contractual arrangements among our PRC subsidiary, the VIEs and their shareholders as a type of acquisition transaction falling under the M&A Rules.

        However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the CSRC's opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If the CSRC or any other PRC regulatory agencies subsequently determines that we need to obtain the CSRC's approval for this offering or if the CSRC or any other PRC government agencies promulgates any interpretation or implements rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. Sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other PRC regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of the ADSs.

         The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        The M&A Rules discussed in the preceding risk factor and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a

62


Table of Contents

proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

         PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary's ability to increase its registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.

        SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. See "Regulation—Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents."

        If our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiary may be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, including (i) the requirement by SAFE to return the foreign exchange remitted overseas or into the PRC within a period of time specified by SAFE, with a fine up to 30% of the total amount of foreign exchange remitted overseas or into the PRC and deemed to have been evasive or illegal and (ii) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of remitted foreign exchange deemed evasive or illegal.

        We have requested PRC residents holding direct or indirect interest in our Cayman Islands holding company to our knowledge to make the necessary applications, filings and amendments as required by applicable foreign exchange regulations. We are committed to complying with and to ensuring that our Shareholders who are subject to the regulations will comply with the relevant SAFE rules and regulations. All of our shareholders who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents have completed the foreign exchange registrations required in connection with our recent corporate restructuring. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. Furthermore, due to the inherent uncertainty in the implementation of the regulatory requirements by PRC authorities, such registration might not be always practically available in all circumstances as prescribed in those regulations. We cannot assure you that SAFE or its local branches

63


Table of Contents

will release explicit requirements or interpret the relevant PRC and regulations otherwise. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiary's ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

        As there is uncertainty concerning the reconciliation of these foreign exchange regulations with other approval requirements, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant governmental authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

         Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

        Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who have been granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After our company becomes an overseas listed company upon completion of this offering, we and our directors, executive officers and other employees who are PRC residents and who have been granted options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly listed company who are PRC residents are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. See "Regulation—Regulations Related to Stock Incentive Plans." We adopted an equity incentive plan in June 2018 which was subsequently amended and restated in August 2018, and under which we have the discretion to grant a broad range of equity-based awards to eligible participants. See "Management—Equity Incentive Plan." We will make efforts to comply with these requirements upon completion of our initial public offering. However, there can be no assurance that they can successfully register with SAFE in full compliance with the rules. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under our share incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises' ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law.

64


Table of Contents

        The State Administration of Taxation, or the SAT, has also issued relevant rules and regulations concerning employee share incentives. Under these rules and regulations, our employees working in the PRC will be subject to PRC individual income tax upon exercise of the share options or grant of the restricted shares. Our PRC subsidiary has obligations to file documents with respect to the granted share options or restricted shares with relevant tax authorities and to withhold individual income taxes for its employees upon exercise of the share options or grant of the restricted shares. If our employees fail to pay or we fail to withhold their individual income taxes according to relevant rules and regulations, we may face sanctions imposed by the competent governmental authorities.

         We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements.

        We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries and on remittances from the consolidated VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside of China and pay our expenses. When our principal operating subsidiaries or the consolidated VIEs incur additional debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to our PRC subsidiary and certain other subsidiaries permit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable accounting standards and regulations.

        Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required to set aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves, together with the registered capital, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries incorporated in China are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or advances. Our subsidiaries did not have any retained earnings available for distribution in the form of dividends as of June 30, 2018. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary.

        Limitations on the ability of our consolidated VIEs to make remittance to the wholly-foreign owned enterprise and on the ability of our subsidiaries to pay dividends to us could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business.

         If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

        Under the Enterprise Income Tax Law of the People's Republic of China, or the EIT Law, and its implementation rules, an enterprise established outside of the PRC with a "de facto management body" within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the SAT issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in Circular 82 may reflect the SAT's general position on how the "de facto

65


Table of Contents

management body" test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

        We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Components of Results of Operations—Taxation—China." However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body." As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on worldwide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, dividends we pay to non-PRC holders may be subject to PRC withholding tax, and gains realized on the sale or other disposition of ADSs or Class A ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such dividends or gains are deemed to be from PRC sources.. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs.

         Failure to renew our preferential tax treatment qualification could affect our results of operations.

        One of our variable interest entities in China, Samoyed Internet Finance, is qualified as a National High- and New-tech Enterprise and as a result, enjoys a preferential enterprise income tax rate of 15%. The National High- and New-tech Enterprise qualification is re-assessed by the relevant authorities every three years. The current qualification held by Samoyed Internet Finance will expire on October 31, 2020. Failure to renew such preferential tax treatment qualification could affect our results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Components of Results of Operations—Taxation—China."

         We may not be able to obtain certain benefits under a relevant tax treaty on dividends paid by our PRC subsidiary to us through our Hong Kong subsidiary.

        We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity from our PRC subsidiary to satisfy part of our liquidity requirements. Pursuant to the EIT Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC "resident enterprise" to a foreign enterprise investor, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, such withholding tax rate may be lowered to 5% if a Hong Kong resident

66


Table of Contents

enterprise owns at least 25% of a PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong enterprise must be the beneficial owner of the relevant dividends; and (b) the Hong Kong enterprise must directly hold at least 25% share ownership in the PRC enterprise during the 12 consecutive months preceding its receipt of the dividends. However, a transaction or arrangement entered into for the primary purpose of enjoying a favorable tax treatment should not be a reason for the application of the favorable tax treatment under the Double Tax Avoidance Arrangement. If a taxpayer inappropriately is entitled to such favorable tax treatment, the competent tax authority has the power to make appropriate adjustments.

        In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective on November 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. However, if a competent tax authority finds out that it is necessary to apply the general anti-tax avoidance rules, it may start general investigation procedures for anti-tax avoidance and adopt corresponding measures for subsequent administration. Accordingly, Samoyed (Hong Kong) Limited, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Shenzhen Samoyed Information Technology Co., Ltd., our PRC subsidiary, if it satisfies the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81 and Circular 60, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

         We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.

        On February 3, 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an "indirect transfer" of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, "PRC taxable assets" include assets attributed to an establishment in China, immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a "reasonable commercial purpose" of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an

67


Table of Contents

indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. On October 17, 2017, the State Administration of Taxation promulgated the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source ("SAT Circular 37"), which became effective on December 1, 2017. SAT Circular 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises.

        We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as private equity financing transactions, share exchange, offshore restructuring or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of the shares or investments in other non-PRC resident companies or other taxable assets by us. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions under Bulletin 7 and SAT Circular 37. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under Bulletin 7 and SAT Circular 37. As a result, we may be required to expend valuable resources to comply with Bulletin 7 and SAT Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with Bulletin 7 and SAT Circular 37, or to establish that our company should not be taxed under Bulletin 7 and SAT Circular 37, which may have a material adverse effect on our financial condition and results of operations.

        The PRC tax authorities have the discretion under Bulletin 7 and SAT Circular 37 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions under Bulletin 7 and SAT Circular 37, our income tax costs associated with such transactions will be increased, which may have a material adverse effect on our financial condition and results of operations. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance to them for the investigation of any transactions we were involved in. Heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

         The audit report included in this prospectus is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, our investors are deprived of the benefits of such inspection.

        Our independent registered public accounting firm that issues the audit report included in our prospectus filed with the U.S. Securities and Exchange Commission, or the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the

68


Table of Contents

PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

        Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

        The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

         Proceedings instituted by the SEC against the "big four" PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

        In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act against the Chinese affiliates of the "big four" accounting firms (including our auditors). The Rule 102(e) proceedings initiated by the SEC relate to these firms' inability to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission, or the CSRC. The issues raised by the proceedings are not specific to our auditors or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States.

        In January 2014, the administrative judge reached an Initial Decision that the "big four" accounting firms should be barred from practicing before the SEC for six months. Thereafter, the accounting firms filed a Petition for Review of the Initial Decision, prompting the SEC Commissioners to review the Initial Decision, determine whether there had been any violation and, if so, determine the appropriate remedy to be placed on these audit firms.

        In February 2015, the Chinese affiliates of the "big four" accounting firms (including our auditors) each agreed to censure and pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S. listed companies. The settlement requires the firms to follow detailed procedures and to seek to provide the SEC with access to the Chinese firms' audit documents via the CSRC. If future document productions fail to meet the specified criteria, the SEC retains the authority to impose a variety of additional measures (e.g., imposing penalties such as suspensions, restarting the administrative proceedings).

        In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, and could result in delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our shares may be adversely affected. If our independent registered public accounting firm was denied, temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined to not be in compliance with the requirements of the Exchange Act.

69


Table of Contents

RISKS RELATED TO OUR ADSs AND THIS OFFERING

         An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

        We intend to apply to have our ADSs listed on the New York Stock Exchange. Prior to the completion of this offering, there has been no public market for our ADSs or our ordinary shares, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected. The initial public offering price for our ADSs was determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

         The trading price of our ADSs may be volatile, which could result in substantial losses to investors.

        The trading price of our ADSs may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies' securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

        In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

    variations in our revenues, earnings, cash flow and data related to our user base or user engagement;

    announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

    announcements of new products, services and expansions by us or our competitors;

    changes in financial estimates by securities analysts;

    detrimental adverse publicity about us, our services or our industry;

    additions or departures of key personnel;

    release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

    potential litigation or regulatory investigations.

        Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

        In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management's attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not

70


Table of Contents

successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

         If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

        The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline.

         The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

        Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be                    ADSs (equivalent to                    Class A ordinary shares) outstanding immediately after this offering, or                    ADSs (equivalent to                    Class A ordinary shares) if the underwriters exercise their option to purchase additional ADSs in full. In connection with this offering, we and our officers, directors and existing and all of our option holders have agreed not to sell any ordinary shares or ADSs for         days after the date of this prospectus without the prior written consent of the underwriter, subject to certain exceptions. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See "Underwriting" and "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling our securities after this offering.

        We adopted an equity incentive plan in June 2018 which was subsequently amended and restated in August 2018, and under which we have the discretion to grant a broad range of equity-based awards to eligible participants. See "Management—Equity Incentive Plan." We intend to register all ordinary shares that we may issue under this equity incentive plan. Once we register these ordinary shares, they can be freely sold in the public market in the form of ADSs upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in "Underwriting" and "Shares Eligible for Future Sale". If a large number of our ordinary shares or securities convertible into our ordinary shares are sold in the public market in the form of ADSs after they become eligible for sale, the sales could reduce the trading price of our ADSs and impede our ability to raise future capital. In addition, any ordinary shares that we issue under an equity incentive plan would dilute your percentage ownership if you purchase ADSs in this offering.

         Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

        We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay

71


Table of Contents

any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

        Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment.

         Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of US$                    per ADS. This number represents the difference between the assumed initial public offering price of US$                    per ADS, the midpoint of the estimated range of the offering price, and our pro forma as adjusted net tangible book value per ADS of US$                    as of June 30, 2018, after giving effect to this offering, at the assumed initial public offering price of US$                    per ADS, the midpoint of the estimated offering price range shown on the front cover page of this prospectus. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

         We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.

        We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

         We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares.

        A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of "passive" income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Based on the projected composition of our assets and income, including goodwill, taking into account the expected proceeds from this offering and projections as to the market price of our ADSs following the offering, we do not anticipate becoming a PFIC for our taxable year ending December 31, 2018, although it is possible that we may be a PFIC in future taxable years due to potential changes in the composition of our assets to include a greater percentage of passive assets that produce passive income in the form of interest income. The determination of whether we may be a PFIC will also depend, in part, on how, and how quickly, we use our liquid assets and the cash raised in this offering. Additionally, although the law in this regard is

72


Table of Contents

unclear, we treat our VIEs as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operation in our combined and consolidated financial statements. If it were determined, however, that we are not the owner of our VIEs for U.S. federal income tax purposes, we could be treated as a PFIC for the current and any subsequent taxable years. Whether we are a PFIC is a factual determination and we must make a separate determination each taxable year as to whether we are a PFIC (after the close of each taxable year). While we do not anticipate becoming a PFIC for our taxable year ending December 31, 2018, it is possible that we may be a PFIC in future taxable years, and, because the determination of whether we may be a PFIC is made annually after the close of the relevant taxable year, we cannot assure you that we will not be a PFIC for our taxable year ending December 31, 2018 or any future taxable year.

        If we were to be classified as a PFIC for any taxable year during which a U.S. Holder (as defined in "Taxation—U.S. Federal Income Tax Considerations") holds ADSs or Class A ordinary shares, such U.S. Holder would generally be subject to reporting requirements and might incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the ADSs or Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent any such distribution is treated as an "excess distribution" under the applicable U.S. federal income tax rules. Further, if we were to be classified as a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC, unless the U.S. Holder makes certain elections, for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares even if we cease to qualify as a PFIC under the rules set forth above. U.S. Holders are urged to consult their tax advisor concerning the U.S. federal income tax consequences of acquiring, holding, and disposing of ADSs or Class A ordinary shares if we were to be classified as a PFIC. For more information see "Taxation—U.S. Federal Income Tax Considerations—PFIC Rules."

         Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

        We have adopted the post-offering amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering. Our post-offering amended and restated memorandum and articles of association will contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions, including a provision that entitles each Class B ordinary share to ten votes in respect of all matters subject to a shareholders' vote. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. In addition, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

73


Table of Contents

         Our corporate actions will be substantially controlled by Mr. Jianming Lin, our Chairman, and Mr. Debin Tang, our Chief Executive Officer, who will together have the ability to control or exert significant influence over important corporate matter. Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

        Our post-offering amended and restated memorandum and articles of association provide that in respect of all matters subject to a shareholders' vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Upon the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional ADSs, Mr. Jianming Lin, our Chairman, and Mr. Debin Tang, our Chief Executive Officer, will together beneficially own 98,336,606 Class A ordinary shares and all the Class B ordinary shares issued and outstanding, representing        % of our aggregate voting power and thus will together have the ability to control or exert significant influence over important corporate matters. Thus, investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders, such as electing directors and approving material mergers, acquisitions or other business combination transactions. This concentrated control will limit your ability to influence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our Class A ordinary shares and our ADSs of the opportunity to sell their shares at a premium over the prevailing market price. As a result of the foregoing, the value of your investment could be materially reduced.

         You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

        We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

        Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of register of members of these companies. Our directors will have discretion under our post-offering amended and restated memorandum and articles of association we expect to adopt and will become effective immediately prior to the completion of this offering, to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

74


Table of Contents

        Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the U.S. Currently, we do not plan to rely on home country practice with respect to any corporate governance matter. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

        As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see "Description of Share Capital—Differences in Corporate Law."

         Certain judgments obtained against us by our shareholders may not be enforceable.

        We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States.As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforcement of Civil Liabilities."

         We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

        We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company.

        The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.

         We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

        Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

    the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

    the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

    the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

75


Table of Contents

    the selective disclosure rules by issuers of material non-public information under Regulation FD.

        We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

         We are a "controlled company" within the meaning of the New York Stock Exchange Listed Company Manual and as a result we are entitled to, and do, rely on the exemption from certain corporate governance requirement that provide protection to shareholders of other companies. We are also permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the corporate governance requirements of the New York Stock Exchange Listed Company Manual; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance requirement of the New York Stock Exchange Listed Company Manual.

        Upon the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional ADSs, Mr. Jianming Lin, our Chairman, and Mr. Debin Tang, our Chief Executive Officer, will together beneficially own 98,336,606 Class A ordinary shares and all the Class B ordinary shares issued and outstanding, representing        % of our aggregate voting power and will have the power to appoint a majority of the board of directors. As a result, we will be a "controlled company" under the New York Stock Exchange Listed Company Manual and entitled to elect not to comply with certain corporate governance requirements of the New York Stock Exchange, including the requirement that a majority of our directors to be independent. Upon the completion of this offering, a majority of the members of our board of directors will not be independent directors as we choose to rely on the "controlled companies" exemption and do not intend to meet that requirement voluntarily.

        If we are no longer a "controlled company," we may in the future invoke "home country" exceptions available to foreign private issuers, such as us, under the New York Stock Exchange Listed Company Manual which are similar to the exemptions for controlled companies, and also include the possibility of additional exceptions from the New York Stock Exchange Listed Company Manual, such as the requirement that employee incentive equity share award plans be approved by shareholders. As a result of our use of the "controlled company" exemption, and any future use by us of the "home country" exceptions, holders of our ADSs will not have the same protection afforded to shareholders of companies that are subject to all of NYSE corporate governance requirements.

         The rights to pursue claims against the depositary, and the voting rights, of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise any right to vote the Class A ordinary shares which are represented by your ADSs.

        Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. See "Description of American Depositary Shares" for more information.

76


Table of Contents

        As a holder of our ADSs, you will only be able to direct the exercise of the voting rights attaching to the underlying Class A ordinary shares which are represented by your ADSs in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will use its best endeavors to vote the underlying Class A ordinary shares which are represented by your ADSs in accordance with your instructions. You will not be able to directly exercise any right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw the Class A ordinary shares from the ADR facility and become the registered holder of such Class A ordinary shares prior to the applicable record date for the general meeting. Under our post-offering amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering, the minimum notice period required for convening a general meeting is ten days. As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders' annual general meetings. Our post-offering amended and restated memorandum and articles of association provide that we may, but are not obliged to, in each year hold a general meeting as our annual general meeting. When a general meeting is convened, you may not receive sufficient advance notice to enable you to withdraw the underlying Class A ordinary shares represented by your ADSs from the ADR facility and become the registered holder of such Class A ordinary shares prior to the record date of the general meeting to allow you to vote with respect to any specific resolution or matter to be considered and voted upon at such general meeting. If we give notice to our shareholders of any general meeting, the depositary will use its best endeavours to notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the Class A ordinary shares underlying your ADSs are not voted as you requested.

         The depositary for our ADSs will give us a discretionary proxy to vote the Class A ordinary shares represented by your ADSs if you do not give proper or timely voting instructions to the depositary, except in limited circumstances, which could adversely affect your interests.

        Under the deposit agreement for the ADSs, if you do not give proper or timely voting instructions to the depositary, the depositary will give us a discretionary proxy to vote the underlying Class A ordinary shares represented by your ADSs at shareholders' meetings unless:

    we have failed to timely provide the depositary with notice of meeting and related voting materials;

    we have instructed the depositary that we do not wish a discretionary proxy to be given;

    we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

    a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

    the voting at the meeting is to be made on a show of hands.

        The effect of the foregoing is that if you do not give proper or timely voting instructions to the depositary as to how to vote at shareholders' meetings, a discretionary proxy to vote the Class A ordinary shares represented by your ADSs will be given to a person designated by us, except under the circumstances described above. This may make it more difficult for shareholders and holders of ADSs

77


Table of Contents

to influence the management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy.

         You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for them if it is illegal or impracticable to make them available to you.

        The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other deposited securities which are represented by your ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impracticable to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, Class A ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our Class A ordinary shares or any value for them if it is illegal or impracticable for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

         You may experience dilution of your holdings due to inability to participate in rights offerings.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

         You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, or on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

78


Table of Contents

         We will incur significantly increased costs and devote substantial management time as a result of the listing of our ADSs.

        We will incur additional legal, accounting and other expenses as a public reporting company, particularly after we cease to qualify as an emerging growth company. For example, we will be required to comply with additional requirements of the rules and regulations of the SEC and requirements of the New York Stock Exchange, including applicable corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

        In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may also initiate legal proceedings against us and our business may be adversely affected.

79


Table of Contents


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Regulations". Known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify some of these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

    our goals and strategies;

    our future business development, financial condition and results of operations;

    the expected growth of the credit card repayment and consumer finance industry in China;

    our expectations regarding demand for and market acceptance of our services;

    our plans to invest in our platform;

    our relationships with our financial institution partners;

    our relationships with third-party financial service providers;

    competition in our industry; and

    relevant government policies and regulations relating to our industry.

        These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should thoroughly read this prospectus and the documents that we refer to herein with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications including industry data and information from Oliver Wyman. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the new and rapidly changing nature of the online financial services industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our industry. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

80


Table of Contents


USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$            million, or approximately US$                         million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$                        per ADS, the midpoint of the price range shown on the front cover page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$                        per ADS would increase (decrease) the net proceeds to us from this offering by US$                         million, assuming the underwriters do not exercise their over-allotment option to purchase additional ADSs and the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The primary purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our shares, retain talented employees by providing them with equity incentives and enable access to the public equity markets for us and our shareholders. We plan to use the net proceeds of this offering for the following purposes:

    customer acquisition and brand building;

    talent acquisition;

    technology infrastructure;

    strategic acquisitions or investments; and

    general corporate purposes.

        Accordingly, our management will have discretion in the application of net proceeds to us from this offering, and investors will be relying on the judgment of our management regarding the use of these net proceeds.

        In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiary only through loans or capital contributions. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund its capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, which may delay or prevent us from providing the proceeds of this offering to our PRC subsidiary. See "Risk Factors—Risks Related to PRC Laws Regulating Our Business and Industry—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

81


Table of Contents


DIVIDEND POLICY

        Our board of directors has discretion regarding whether to declare or pay dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that we are able to pay our debts as they fall due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to pay dividends on our ordinary shares, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

        We have never declared or paid cash dividends on our ordinary shares. We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and grow our business.

        We are a holding company incorporated as an exempted company in the Cayman Islands. We may rely on dividends from our subsidiary in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See "Risk Factors—Risks Related to PRC Laws Regulating Our Business And Industry—We rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business and pay any dividends to our shareholders."

        If we pay any dividends, we will pay those dividends which are payable in respect of the underlying Class A ordinary shares represented by ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary will then pay such amounts to our ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

82


Table of Contents


EXCHANGE RATE INFORMATION

        Our reporting currency is the RMB because our business is mainly conducted in China and all of our revenues are denominated in RMB. This prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions.

        The following table sets forth, for the periods indicated, information concerning exchange rates between the RMB and the U.S. dollar based on the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board. These rates are provided solely for your reference and convenience. Unless otherwise stated, all translations of RMB into U.S. dollars in this prospectus were made at the rate of RMB6.6171 to US$1.00, the noon buying rate on June 29, 2018, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no representation that the RMB or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. On September 21, 2018, the noon buying rate for RMB was RMB6.8559 to US$1.00.

 
  Certified exchange rate  
Period
  Period-End   Average(1)   High   Low  
 
  (RMB per US$1.00)
 

2013

    6.0537     6.1412     6.2438     6.0537  

2014

    6.2046     6.1704     6.2591     6.0402  

2015

    6.4778     6.2869     6.4896     6.1870  

2016

    6.9430     6.6549     6.9850     6.4480  

2017

    6.5063     6.7350     6.9575     6.4773  

2018

                         

March

    6.2726     6.3174     6.3565     6.2685  

April

    6.3325     6.2967     6.3340     6.2655  

May

    6.4096     6.3701     6.4175     6.3325  

June

    6.6171     6.4651     6.6235     6.3850  

July

    6.8038     6.7164     6.8097     6.6123  

August

    6.8300     6.8453     6.9330     6.8018  

September (through September 21, 2018)

    6.8559     6.8497     6.8704     6.8270  

(1)
Annual averages are calculated using the average of the rates on the last business day of each month during the relevant year. Monthly averages are calculated using the average of the daily rates during the relevant month.

83


Table of Contents


CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2018 as follows:

    on an actual basis; and

    on a pro forma basis to reflect (i) the automatic conversion of all our issued and outstanding preferred shares Series A-1 to Series A-8 on one-for-one basis into our Class A ordinary shares immediately upon the completion of this offering; (ii) the designation of all ordinary shares held by TL Development Limited into 166,710,588 Class B ordinary shares on a one-for-one basis immediately upon the completion of this offering; (iii) the designation of all the remaining outstanding ordinary shares into Class A ordinary shares on a one-for-one basis immediately upon the completion of this offering; and

    on a pro forma as adjusted basis to reflect the (i) automatic conversion of all our issued and outstanding preferred shares Series A-1 to Series A-8 on one-for-one basis into our Class A ordinary shares immediately upon the completion of this offering; (ii) the designation of all ordinary shares held by TL Development Limited into 166,710,588 Class B ordinary shares on a one-for-one basis immediately upon the completion of this offering; (iii) the designation of all the remaining outstanding ordinary shares into Class A ordinary shares on a one-for-one basis immediately upon the completion of this offering; and (iv) sale of                         Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

84


Table of Contents

        You should read this table together with the consolidated financial statements and related notes, and the sections titled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" that are included in this prospectus.

 
  As of June 30, 2018  
 
  Actual   Pro Forma   Pro Forma as
Adjusted
 
 
  RMB   US$   RMB   US$   RMB   US$  
 
  (in thousands)
 
 
  (unaudited)
 

Mezzanine equity:

                                     

Convertible redeemable Series A-2 to A-8 preferred shares (US$0.00001 par value; 223,382,500 shares authorized; 223,382,500 shares issued and outstanding on an actual basis; none outstanding on a pro forma basis)

    449,724     67,964                      

Total mezzanine equity

    449,724     67,964                      

Shareholders' deficit:

                                     

Ordinary shares (US$0.00001 par value; 4,779,964,000 shares authorized; 269,139,086 shares issued and outstanding on an actual basis; 569,175,086 shares outstanding on pro forma basis)

    17     3     37     6              

Non-redeemable preferred shares (US$0.00001 par value; 76,653,500 shares authorized; 76,653,500 shares issued and outstanding on an actual basis; none outstanding on a pro forma basis)

    85,926     12,985                      

Additional paid-in capital

            535,630     80,946              

Accumulated deficit

    (178,502 )   (26,976 )   (178,502 )   (26,976 )            

Total shareholders' (deficit)/equity

    (92,559 )   (13,988 )   357,165     53,976              

Total mezzanine equity and shareholders' equity/(deficit)

    357,165     53,976     357,165     53,976              

85


Table of Contents


DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per Class A ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of June 30, 2018 was approximately US$53 million, or US$0.20 per ordinary share as of that date and US$                    per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to (i) the automatic conversion of all of our preferred shares into ordinary shares and (ii) the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$                    per ordinary share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all ordinary shares, including Class A ordinary shares and Class B ordinary shares.

        Without taking into account any other changes in net tangible book value after June 30, 2018, other than to give effect to (i) the automatic conversion of all of our preferred shares into ordinary shares, and (ii) the sale of the ADSs offered in this offering at the assumed initial public offering price of US$                    per ADS, the midpoint of the estimated range of the offering price, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been approximately US$                     million, or US$                    per ordinary share and US$                    per ADS. This represents an immediate increase in net tangible book value of US$                    per ordinary share and US$                    per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$                    per ordinary share and US$                per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 
  Per
Ordinary
Share
  Per ADS  
 
  (US$)
 

Assumed initial public offering price

  $                $               

Net tangible book value as of June 30, 2018

  $ 0.20   $               

Pro forma net tangible book value per ordinary share after giving effect to the automatic conversion of our preferred shares into ordinary shares as of June 30, 2018

  $ 0.09   $               

Pro forma as adjusted net tangible book value after giving effect to (i) the automatic conversion of our preferred shares into ordinary shares and (ii) this offering

  $                $               

Amount of dilution in net tangible book value to new investors in this offering

  $                $               

        A US$1.00 change in the assumed public offering price of US$                    per ADS would increase (decrease), in the case of an increase (decrease), our pro forma as adjusted net tangible book value after giving effect to this offering by approximately US$                     million, the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by US$                    per ordinary share and US$                    per ADS and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by US$                    per ordinary share and US$                    per ADS, assuming no change to the number

86


Table of Contents

of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses.

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2018, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us in this offering, the total consideration paid and the average price per ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.

 
  Ordinary Shares
Purchased
  Total Consideration   Average
Price Per
Ordinary
Share (in
US$)
   
 
 
  Amount
(in US$
thousands)
   
  Average
Price Per
ADS (in US$)
 
 
  Number   Percent   Percent  

Existing shareholders

            % $         % $     $    

New investors

            % $         % $     $    

Total

            % $         %            

        The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

        In addition, the discussion and tables above exclude 10,824,914 ordinary shares reserved for future issuance under our 2018 Equity Incentive Plan, which may be granted as options, restricted shares or restricted share units.

87


Table of Contents


ENFORCEMENT OF CIVIL LIABILITIES

        We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

    Cayman Islands companies may not have standing to sue before the federal courts of the United States.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. Some of our directors and executive officers are nationals or residents of jurisdictions other than the United States and some of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Cogency Global Inc. as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        Maples and Calder (Hong Kong) LLP, our legal counsel as to Cayman Islands law, and Fangda Partners, our legal counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        We have been advised by our Cayman Islands legal counsel, Maples and Calder (Hong Kong) LLP, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any State, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without reexamination of the merits underlying the dispute based on the principle that a judgment of a competent foreign

88


Table of Contents

court imposes upon the judgment debtor an obligation to pay the liquidated sum for which judgment has been given provided certain conditions are met. For such a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

        Fangda Partners has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other certain form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. However, it would be difficult for foreign shareholders to establish sufficient nexus to the PRC by virtue only of holding our ADSs or ordinary shares.

89


Table of Contents


CORPORATE HISTORY AND STRUCTURE

        Shenzhen Samoyed Internet Finance Service Co., Ltd., or Samoyed Internet Finance, was established in the PRC in May 2015. Since its incorporation, Samoyed Internet Finance had completed several rounds of equity financing and raised funding from various investors.

        To facilitate our financing and listing opportunities outside China, we went through a series of transactions from November 2017 through April 2018 to form our offshore holding structure, or the Restructuring. In November 2017, we incorporated Samoyed Holding Limited, or Samoyed Cayman, under the laws of the Cayman Islands as our offshore holding company, and subsequently we established a wholly-owned subsidiary in the British Virgin Islands, Samoyed Technologies Holdings Limited, or Samoyed BVI. In November 2017, Samoyed (HK) Limited, or Samoyed HK, was incorporated in Hong Kong as a wholly-owned subsidiary of Samoyed BVI. Shenzhen Samoyed Information Technology Co., Ltd., or Samoyed Information was established in March 2018 as a wholly-owned subsidiary of Samoyed HK in the PRC.

        In April 2018, Samoyed Information entered into a series of contractual agreements with Samoyed Internet Finance and its shareholders. Samoyed Internet Finance has been treated as a variable interest entity of Samoyed Information since April 2018. In April 2018, Samoyed Information entered into a series of contractual agreements with Shenzhen Wuyu Technologies Services Co., Ltd, or Wuyu Technologies, a company owned by Mr. Debin Tang, our Chief Executive Officer, and Mr. Jianming Lin, our Chairman, in the PRC, and the shareholders of Wuyu Technologies such that Wuyu Technologies has been treated as a variable interest entity of Samoyed Information since April 2018. On September 17, 2018, Wuyu Technologies acquired 1.0549% of the equity interest in Samoyed Internet Finance owned by one of the shareholders of Samoyed Internet Finance, or the transferor, for a consideration of RMB5 million. Concurrently with the acquisition, Wuyu Technologies entered into a series of contractual agreements with Samoyed Internet Finance and Samoyed Information to assume all the rights and obligations of the transferor under the contractual agreements entered into by Samoyed Information, Samoyed Internet Finance and its shareholders, including the transferor, in April 2018. See "—Contractual Arrangement with Our Variable Interest Entities." We currently operate our business in China through Samoyed Internet Finance and Wuyu Technologies. Concurrently with our Restructuring, Samoyed Cayman completed a new round of equity financing with PAG amounting to RMB200 million in consideration.

        On January 26, 2018, we and our Chairman Jianming Lin entered into a share purchase agreement with Hunan Huixin and its shareholders, to acquire 95% and 5% of the share capital of Hunan Huixin, respectively. Hunan Huixin possesses an approval to operate financing guarantee business within Hunan Province, which will expire on August 18, 2021 and can be extended subject to certain administrative conditions.

        On January 31, 2018, Samoyed Internet Finance established Shenzhen Zhongchengxingye Commercial Factoring Co., Ltd. with primary business scope of factoring and related consulting services.

        On August 3, 2018, Samoyed Information established Shanghai Wangen Technology Co., Ltd. with primary business scope of technology development and technology consultation.

90


Table of Contents

Corporate Structure

        The following diagram illustrates our corporate structure as of the date of this prospectus, including our principal subsidiaries and our variable interest entities.

GRAPHIC


(1)
Major persons or entities that beneficially own Samoyed Internet Finance's equity interests include affiliates of our principal shareholders, TL Development Limited, TLJC Development Limited, TLZX Development Limited, YIL Samoyed Ltd and YH Argo (BVI) Limited. For a description of our principal shareholders, see "Principal Shareholders."

Contractual Arrangement with Our Variable Interest Entities

        PRC laws and regulations impose restrictions on foreign ownership and investment in internet-based businesses such as distribution of online information and other value-added telecommunications services. We are a Cayman Islands company and our PRC subsidiary is considered a foreign invested enterprise. To comply with PRC laws and regulations, we have entered into a series of contractual arrangements, through Samoyed Information, with our variable interest entities, the shareholders of our variable interest entities to obtain effective control over our variable interest entities.

91


Table of Contents

        We currently conduct our business through our variable interest entities based on these contractual arrangements, which allow us to:

    exercise effective control over our variable interest entities;

    receive substantially all of the economic benefits from our variable interest entities; and

    have an exclusive option to purchase all or part of the equity interests in our variable interest entities and when and to the extent permitted by PRC law.

        As a result of these contractual arrangements, we have become the primary beneficiary of our variable interest entities under U.S. GAAP. We have consolidated the financial results of our variable interest entities in our consolidated financial statements in accordance with U.S. GAAP.

        The following is a summary of the currently effective contractual arrangements in relation to our wholly-owned subsidiary, Samoyed Information, and our variable interest entities.

Agreements that Provide Us with Effective Control over Our Variable Interest Entities

        Share Pledge Agreements.    Pursuant to the share pledge agreements, the shareholders of our variable interest entities have pledged all of their equity interest in our variable interest entities as a continuing first priority security interest, as applicable, to respectively guarantee our variable interest entities' performance of their obligations under the exclusive business cooperation agreements between our variable interest entities and Samoyed Information. If our variable interest entities or any of their shareholders breach their contractual obligations under these agreements, Samoyed Information, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, Samoyed Information's rights include forcing the disposition or sale of all or part of the pledged equity interests of the applicable variable interest entities and receiving proceeds from such auction or sale in accordance with PRC law. Each of the shareholders of our variable interest entities agrees that, during the term of the applicable share pledge agreement, such shareholder will not dispose of the pledged equity interests or create or allow creation of any encumbrance on the pledged equity interests without the prior written consent of Samoyed Information. Samoyed Information is entitled to collect all dividends declared by our variable interest entities. Each share pledge agreement will remain effective until the applicable variable interest entity discharge all their obligations under the exclusive business cooperation agreements. We have registered pledges of equity interest in Wuyu Technologies with the competent local office of the administration for market regulation in accordance with the PRC Property Rights Law and are in the process of registering pledges of equity interest in Samoyed Internet Finance, which is expected to be accomplished prior to this offering.

        Power of Attorney.    Pursuant to each power of attorney, each shareholder of our variable interest entities has irrevocably appointed Samoyed Information to act as such shareholder's exclusive attorney-in-fact to exercise all shareholder rights, including the right to attend and vote on shareholder's meetings, appoint directors and executive officers and sell or dispose all or part of the equity interests owned by such shareholder in our variable interest entities. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of the applicable variable interest entity.

Agreements that Allow Us to Receive Economic Benefits from our Variable Interest Entities

        Exclusive Business Cooperation Agreements.    Under the exclusive business cooperation agreements, Samoyed Information has the exclusive right to provide each of our variable interest entities and their subsidiaries with business support, technical and consulting services and other services. In exchange, Samoyed Information is entitled to receive a service fee from each of our variable interest entities on a semi-annual basis and in an amount equal to all of its net income. Samoyed Information owns the intellectual property rights arising out of the performance of the exclusive business cooperation

92


Table of Contents

agreement. Unless otherwise agreed by the parties, this agreement will remain effective for a term of ten (10) years and may be extended from time to time by Samoyed Information at its determination.

Agreements that Provide Us with the Option to Purchase the Equity Interest in Our Variable Interest Entities

        Exclusive Option Agreements.    Pursuant to the exclusive option agreements, our variable interest entities and each of their shareholders have irrevocably granted Samoyed Information an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion at any time, to the extent permitted under PRC law, all or part of such shareholder's equity interests in the applicable variable interest entities. As for the equity interests in a variable interest entity, the purchase price should be equal to the minimum price as permitted by PRC law. Without Samoyed Information's prior written consent, each variable interest entity and its shareholders have agreed that such variable interest entity shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other beneficial interests, provide any loans or guarantees, enter into any material contract outside the ordinary course of business, merge with any other persons, make any investment and etc. No variable interest entity shall declare or distribute dividends to any of its shareholders without the prior written consent of Samoyed Information. Each agreement will remain effective for a term of ten (10) years and may be extended from time to time by Samoyed Information at its election.

        In the opinion of Fangda Partners, our PRC legal counsel:

    the ownership structures of Samoyed Information and our variable interest entities in China, both currently and immediately after giving effect to this offering, do not and will not violate any applicable PRC law, regulation, or rule currently in effect; and

    the contractual arrangements among Samoyed Information, each of our variable interest entities and its shareholders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, except that the pledges in respect of Samoyed Internet Finance's equity interests would not be deemed validly created until they are registered with competent local office of the administration for market regulation, and, both currently and immediately after giving effect to this offering, do not and will not violate any applicable PRC law, regulation, or rule currently in effect.

        However, we have been further advised by our PRC legal counsel, Fangda Partners, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations. In particular, in January 2015, the MOFCOM published a discussion draft of the proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise, or an FIE. Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately "controlled" by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not arrived at a position on what actions will be taken with respect to the existing companies with the "variable interest entity" structure, whether or not these companies are controlled by Chinese parties. Given there are still substantial uncertainties with respect to the enactment timetable and the final content of the Foreign Investment Law, we cannot rule out the possibility that the PRC regulatory authorities may in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties including being prohibited from continuing operations. See "Risk Factors—Risks Relating to Our Corporate Structure."

93


Table of Contents


SELECTED CONSOLIDATED FINANCIAL DATA AND OPERATING DATA

        The following selected consolidated financial data for the years ended December 31, 2016 and 2017 and as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated financial data for the six months ended June 30, 2017 and 2018 and as of June 30, 2018 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.

        Our consolidated financial statements are prepared and presented in accordance with the generally accepted accounting principles in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

        The following table presents our selected consolidated statements of comprehensive profit/(loss) for the years ended December 31, 2016 and 2017 and for the six months ended June 30, 2017 and 2018.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2017   2018  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Selected Consolidated Statement of Comprehensive profit/(loss) Data:

                                     

Operating revenue:

                                     

Loan facilitation service fees

    31,644     86,439     13,063     31,277     133,804     20,221  

Post-facilitation management service fees

    3,843     16,073     2,429     5,583     9,234     1,396  

Financial guarantee income

    5,658     43,284     6,541     16,118     20,382     3,080  

Recommendation fees

    11,072     87,434     13,213     31,490     65,806     9,945  

Other revenue

    567     2,318     350     729     2,281     345  

Net interest income

    237     19,854     3,000     2,195     36,034     5,445  

Less: Loan provision losses

        (14,972 )   (2,262 )   (4,282 )   (37,547 )   (5,674 )

Net operating revenue

    53,021     240,430     36,334     83,110     229,994     34,758  

Operating expenses:

                                     

Facilitation and servicing expenses

    (42,023 )   (83,757 )   (12,658 )   (39,859 )   (44,815 )   (6,773 )

Guarantee loss

    (14,020 )   (47,632 )   (7,198 )   (17,696 )   (18,082 )   (2,733 )

Sales and marketing expenses

    (50,285 )   (97,873 )   (14,791 )   (39,968 )   (95,718 )   (14,465 )

General and administrative expenses

    (40,725 )   (75,258 )   (11,373 )   (33,618 )   (45,091 )   (6,814 )

Total operating expenses

    (147,053 )   (304,520 )   (46,020 )   (131,141 )   (203,706 )   (30,785 )

Other expenses:

                                     

Interest expense on convertible loans

        (2,265 )   (342 )       (6,105 )   (923 )

Fair value change of derivatives

        (684 )   (103 )       5,425     820  

(Loss)/profit before income tax expense

    (94,032 )   (67,039 )   (10,131 )   (48,031 )   25,608     3,870  

Income tax expense

                         

Net (loss)/profit

    (94,032 )   (67,039 )   (10,131 )   (48,031 )   25,608     3,870  

Accretion on convertible redeemable preferred shares to redemption value

    (5,843 )   (21,282 )   (3,216 )   (9,840 )   (14,810 )   (2,238 )

Net (loss)/profit attributable to ordinary shareholders

    (99,875 )   (88,321 )   (13,347 )   (57,871 )   10,798     1,632  

94


Table of Contents

        The following table presents our selected consolidated balance sheet data as of December 31, 2016 and 2017 and as of June 30, 2018.

 
  As of December 31,   As of June 30,  
 
  2016   2017   2018  
 
  RMB   RMB   US$   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Selected Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    35,984     70,324     10,628     94,297     14,250  

Restricted cash

    56,761     126,554     19,125     481,087     72,704  

Loan receivable, net

        1,214,036     183,470     1,049,651     158,626  

Total assets

    149,896     1,577,393     238,381     1,935,571     292,510  

Funding debt

        1,249,849     188,882     1,461,469     220,862  

Total liabilities

    47,289     1,446,825     218,649     1,578,406     238,534  

Total mezzanine equity

    147,643     233,925     35,352     449,724     67,964  

Total shareholders' (deficit)

    (45,036 )   (103,357 )   (15,620 )   (92,559 )   (13,988 )

        The following table presents our selected consolidated statements of cash flow data for the years ended December 31, 2016 and 2017 and for the six months ended June 30, 2017 and 2018.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2017   2018  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Selected Consolidated Statements of Cash Flow Data:

                                     

Net cash (used in)/provided by operating activities

    (98,392 )   (99,257 )   (15,000 )   (75,958 )   286,331     43,271  

Net cash (used in)/provided by investing activities

    (3,672 )   390     59     4,378     (4,990 )   (754 )

Net cash provided by financing activities

    184,500     203,000     30,678     49,000     97,165     14,684  

Net (decrease in)/increase in cash and cash equivalents

    82,436     104,133     15,737     (22,580 )   378,506     57,201  

95


Table of Contents

Key Operating and Financial Metrics

        We regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.

 
  As of or for the
year ended
December 31,
  As of or for the
six months
ended June 30,
 
 
  2016   2017   2018  

Accumulated number of registered users(1) (in thousands)

    6,406     17,027     24,446  

Accumulated number of users with approved credit line(2) (in thousands)

    446     889     1,120  

Average number of monthly active users over the period (in thousands)(3)

    751     1,739     3,381  

Average number of loan transactions per customer for the last twelve months(4)

    2.6     3.8     4.0  

Number of loan facilitations(5) (in thousands)

    749     1,977     1,241  

Accumulated amount of total approved credit line(6) (RMB in millions)

    3,084     9,002     15,397  

Loan facilitation volume(7) (RMB in millions)

    2,767     7,664     6,716  

Credit card balance transfer

    2,749     5,726     2,828  

Cash advance

    18     1,355     1,520  

Credit loans

        583     2,368  

Outstanding principal balance(8) (RMB in millions)

    1,434     3,348     5,495  

Credit card balance transfer

    1,419     2,276     2,233  

Cash advance

    15     545     1,062  

Credit loans

        527     2,200  

Weighted average APR(9)

    14.5 %   17.0 %   21.5 %

M3+ delinquency rate by balance(10)

    0.42 %   0.82 %   1.66 %

Charge-off rate(11)

    0.04 %   1.23 %   2.66 %

(1)
Accumulated number of registered users represents number of individuals who have registered with us on a cumulative basis.

(2)
Accumulated number of users with approved credit line represents number of individuals who have an credit line approved by us on a cumulative basis.

(3)
Monthly active users represent users who have used our Shengbei mobile application at least once during a given month.

(4)
Average number of loan transactions per customer represents average number of credit drawdowns facilitated by us to each customer for the last twelve months ended on the specified date.

(5)
Loan facilitations represent the total number of credit drawdowns that are facilitated by us in the specified period.

(6)
Accumulated amount of total approved credit line represents the aggregate principal amount of credit lines that have been approved by us to the customers (including increase in credit lines for existing customers) on a cumulative basis.

(7)
Loan facilitation volume represents the aggregate principal amount of credit drawdowns that are facilitated by us in the specified period.

(8)
Outstanding principal balance represents the aggregate principal amount of credit drawdowns that are facilitated by us and have not been repaid as of the specified date.

(9)
Weighted average APR represents the average APR of credit drawdowns weighted by loan volume that are facilitated by us in the specified period.

(10)
M3+ delinquency rate by balance represents the total outstanding balance for all loans of a customer for which any installment repayment is over 90 calendar days past due as of a particular date, divided by the total outstanding balance of all loans. Credit loans and loans that have been charged-off are not included in the M3+ delinquency rate calculation.

(11)
Charge-off rate represents the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due as of a particular date, divided by the total outstanding balance of all loans assuming that no loans are charged off. Loans that are not guaranteed by us are not included in the charge-off rate calculation.

96


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section headed "Selected Consolidated Financial Information" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are the only loan facilitator in China focused on facilitating credit card balance transfer products with a weighted average APR lower than 18.25%, the annual interest rate cap for credit cards set by the PRC regulators, according to Oliver Wyman. We also ranked third in terms of number of registered users as of 2017 among the credit card repayment facilitators in China, according to Oliver Wyman. We believe we are the first company to facilitate balance transfer products through a purely online platform in China.

        We are a leading financial technology service company in China redefining credit card experiences. We work with financial institutions to provide credit services to credit-proven millennials, who are existing credit card holders and have been approved by our credit assessment system for having prime credit. We provide them with access to high-quality consumer finance assets with lower risk profiles than traditional bank installment assets, while enhancing their operational efficiency and risk management capabilities through our proprietary artificial intelligence-based technology solutions.

        We strategically focus on credit-proven millennials in China. In 2017 and the six months ended June 30, 2018, the weighted average APR for credit services facilitated by us was 17.0% and 21.5%, respectively. We have established a barrier of entry in the form of competitive pricing in the balance transfer product segment we serve by optimizing costs at every stage of our operations, including customer acquisition, funding, risk management, payment, collection and operations.

        We currently facilitate three credit services for our customers: (i) credit card balance transfer, which is our primary product to finance our customers' repayment of their credit card bills; (ii) cash advance and (iii) credit loans. The credit services facilitated by us are provided primarily through our proprietary online mobile application platform Shengbei, which provides our users with a superior streamlined user experience, processing substantially all loan applications instantaneously and disbursing any funds within approximately two minutes.

        Despite our limited operating history in China's online consumer finance market, leveraging our track record of low delinquency rates, long-standing relationship and trust with our financial institution partners and our commitment to compliance, we are rapidly migrating to a non-guarantee loan facilitation model. Under this model, we facilitate loan transactions for financial institution partners for a service fee, without taking credit risk on transactions. This non-guarantee loan facilitation model enables collaborative risk management with financial institution partners and frees us from providing any guarantee in the form of risk reserve deposit, guarantee or insurance payment for any loan delinquencies. As of June 30, 2018, we have established partnerships with 19 financial institutions, including commercial banks, consumer finance companies, trust companies and microlending companies, which provide funding to our borrowers. We will continue to build up our financial institution partner base.

97


Table of Contents

        We have experienced robust growth since the commencement of our operations, as illustrated by the charts below:

Accumulated Registered Users   Average Number of Monthly Active Users


GRAPHIC

 


GRAPHIC

Number of Transactions

 

Loan Facilitation Volume


GRAPHIC

 


GRAPHIC


Accumulated Active Borrowers

GRAPHIC

        Our net operating revenue increased from RMB53.0 million in 2016 to RMB240.4 million (US$36.3 million) in 2017, representing a 353.5% increase compared to our net operating revenue in 2016. Our net operating revenue increased from RMB83.1 million for the six months ended June 30, 2017 to RMB230.0 million (US$34.8 million) for the six months ended June 30, 2018, representing a 176.8% increase. Our net loss decreased from RMB94.0 million in 2016 to RMB67.0 million (US$10.1 million) in 2017, representing a 28.7% decrease compared to our net loss in 2016. Our net loss was RMB48.0 million for the six months ended June 30, 2017 and our net profit was RMB25.6 million (US$3.9 million) for the six months ended June 30, 2018.

Key Factors Affecting Our Results of Operations

Economic Conditions and Regulatory Environment in China

        The demand for online personal financial services is dependent upon the overall economic conditions in China. China's rapid economic growth, the increasing private consumption levels and desire to innovate by traditional financial institutions have created a large unmet demand for personal

98


Table of Contents

financial services, especially credit services. With the rapid penetration of internet and mobile devices, China's online consumer finance market has experienced significant growth. The growth of our business will depend in part on the continuation of these trends. In particular, we believe the number of credit-proven millennials in China, which comprise our target customer base, will continue to grow as a result of China's overall economic growth and the growth of the online consumer finance market.

        The regulatory environment for China's online consumer finance industry is rapidly evolving. Recently, PRC regulatory authorities, including the CBIRC and the People's Bank of China, have issued guidelines and policy directives relating to the online consumer finance industry. Although we believe our business model has been affected to a lesser extent than that of other online consumer finance companies in the past, as our business is focused on facilitating loan product with relatively low APRs and is not dependent on peer-to-peer funding, we have had to make adjustments to our operations from time-to-time in response to changes in regulations. In the future, we may make or be required to make further adjustment in our operations in response or to comply with any relevant future PRC laws and regulations. These changes may have an impact on our future financial results, although we believe our management's insight in China's online consumer finance industry and regulatory environment will help us minimize such impact. While new laws and regulations or changes to existing laws and regulations could make facilitating credit to borrowers more difficult or expensive, or making such credit products more difficult for borrowers or financial institution partners to accept or on terms less favorable to us, these events could also provide new product and market opportunities. See "Risk Factors—Risks related to our Business and Industry—The laws and regulations governing the online consumer finance industry in the PRC are rapidly evolving and subject to further change and interpretation. If our business practices or the business practices of our financial institution partners are deemed to violate any PRC laws or regulations, our business, financial condition, results of operations and prospects would be materially and adversely affected."

Product Mix

        Our profitability largely depends on our ability to continually optimize our product mix. As each of our credit and recommendation services varies in their profit margin, our profitability will depend on the product mix we are able to achieve. In the years ended December 31, 2016 and 2017 and in the six months ended June 30, 2018, credit service revenues represented 79.1%, 63.6% and 71.4% of our net operating revenue, respectively and recommendation service revenue represented 20.9%, 36.4% and 28.6% of our net operating revenue, respectively. We commenced our business by offering credit card balance transfer services in 2015. To address the diverse consumption needs of our customers, we began facilitating cash advance in the fourth quarter of 2016 and credit loans in the fourth quarter of 2017. In the year ended December 31, 2017 and the six months ended June 30, 2018, credit card balance transfer, cash advance and credit loans represented 74.7%, 17.7% and 7.6%, and 42.1%, 22.6% and 35.3% of our loan facilitation volume, respectively. In 2017 and the six months ended June 30, 2018, the weighted average APR of credit card balance transfer, cash advance and credit loans facilitated by us was 15.1%, 20.7% and 27.8%, and 15.5%, 20.7% and 29.2%, respectively. In 2017 and the six months ended June 30, 2018, the weighted average APR of our credit card balance transfer and cash advance facilitated by us, considered on an aggregate basis, was 16.09% and 17.33%, respectively. We typically charge a higher service fee rate for cash advance and credit loans as compared to credit card balance transfer, as we expect the low APR for our credit card balance transfer will continue to attract credit-proven customers. Therefore, a change in the mix of credit services we facilitate would affect our profitability. We expect that a substantial proportion of our loan facilitation volume will continue to be credit card balance transfer. Meanwhile, we aim to continue to optimize our mix of credit services by increasing the proportion of our customers eligible for cash advance and credit loans to increase our profitability while maintaining our asset quality. As of June 30, 2018, 47.0% of our customers with an approved credit line are eligible for cash advance. We intend to continue to increase this percentage by allowing more qualified borrowers to be eligible for the product to maximize our profitability.

99


Table of Contents

        Apart from credit services facilitated by us, we also provide tailored third-party credit-related recommendation services to users who do not meet our credit assessment criteria, as well as other third-party non-credit recommendation services to all of our users. Our recommendation service revenues grew from RMB11.1 million in 2016 to RMB87.4 million (US$13.2 million) in 2017, and from RMB31.5 million for the six months ended June 30, 2017 to RMB65.8 million (US$9.9 million) for the six months ended June 30, 2018. An increase in our recommendation services would also lead to more customers and cross-selling, reducing our average customer acquisition cost. We believe that the continuous expansion of our service offerings will attract new customers, create additional revenue sources and enhance the overall appeal of our integrated platform.

Ability to Attract and Retain Customers Efficiently and Increase Customer Engagement

        Our revenue growth is dependent on our ability to attract customers in a cost-effective manner, retain existing customers as repeat customers and increase customer engagement. We believe our ability to continuously offer low-APR credit services is an important factor in attracting customers.

        Our ability to attract new customers in a cost-effective manner will also depend on the effectiveness of our sales and marketing efforts. We use various means to attract new customers, including application store search optimization, display advertising our Member-Get-Member, or MGM, program, and search engine marketing. We also leverage our proprietary Euler system to assess the cost-effectiveness of different sales and marketing channels on a real-time basis and optimize our customer acquisition strategies.

        Once we successfully attract a customer to use our services, we further engage them and cross-sell other credit-related services and non-credit services to them. We believe our ability to successfully recommend such services affects our capability to diversify revenue sources and further monetize our customer base. We have focused on maintaining brand loyalty and have developed our customer retention program, Scenario—Transfer—Activation—Recovery (STAR) Program, to increase our ability to make personalized marketing campaigns to enhance customer retention. Furthermore, we believe the repeat borrowing behavior of our existing customers will be important to our future growth. Accordingly, we continuously re-evaluate their credit profiles and offer increased credit lines for customers with good repayment performance to encourage customer activity. Of all monthly active users on our platform in 2016, 2017 and the six months ended June 30, 2018, approximately 55.5%, 74.5% and 80.0%, respectively, were repeat customers who had successfully borrowed on our platform at least once since registration. In 2017 and the last twelve months ended June 30, 2018, our customers on average borrowed 3.8 and 4.0 times on our platform, respectively. We believe the continued growth in the number of repeat customers will depend on our ability to address the credit needs of our targeted customer cohort, the superior customer experience on our platform and the competitiveness of loan pricing.

Ability to Predict Credit Losses Accurately and Price Credit Appropriately

        Our ability to segment customers into appropriate risk profile levels impacts our ability to accurately predict credit losses, which in turn, affects our ability to offer appropriately differentiated pricing. In particular, our ability to differentiate between customer's credit quality has enabled us to be the only loan facilitator focused on facilitating balance transfer products with a weighted average APR lower than 18.25%.

        We take an advanced and customized credit risk management approach driven by our artificial intelligence and machine learning capabilities. We utilize our big-data analytic capabilities to integrate and analyze the increasing amount of data accumulated through our platform and sourced from third-party data providers to optimize our fraud detection, improve the accuracy of our credit scoring models and enhance our collection effectiveness. Our approach allows us to consistently maintain a stable portfolio of good quality assets, which is instrumental in our ability to continue to attract low-cost funding from our financial institution partners and maintain their satisfaction and confidence in us.

100


Table of Contents

Ability to Access Diversified and Scalable Funding

        The growth of our business is dependent on our ability to ensure that we have access to diversified funding sources and to secure scalable and stable funding for the transactions that we facilitate. With our access to multiple funding sources and the ability to allocate customer loan assets among our financial institution partners, we are not dependent on any particular financial institution partner, and we are able to withstand seasonality and fluctuations in the supply and costs of funding. Working with a diversified array of financial institution partners enables us to efficiently secure a large amount of stable funding to support our growth while maintaining competitive overall funding costs. Furthermore, different financial institution partners will have different risk appetite allowing us to flexibly adjust our product mix. As of June 30, 2018, we have established partnership with 19 financial institution partners, including commercial banks, consumer finance companies, trust companies and microlending companies, which provide funding to our borrowers. As of June 30, 2018, our financial institution partners have provided credit lines in the aggregate of RMB16.3 billion (US$2.46 billion) for our loan facilitation, representing an increase of 366% as compared to December 31, 2017. The interest rates offered by our financial institution partners during any specific period may impact our customers' demand for the loans we facilitate, and in turn impact our profitability. Although interest rates are expected to increase in the near future, we do not think increase in interest rate will have a significant impact on our profitability as our pricing has already reflected such short-term increases and we believe our margins have been maintained at a market equilibrium.

        We currently utilize three funding cooperation models for our credit services: non-guarantee loan facilitation, third-party guarantee loan facilitation and direct guarantee loan facilitation. Under each of these models, we receive loan facilitation service fees and post-facilitation management service fees. Under the third-party guarantee and the direct guarantee loan facilitation models, we provide a guarantee, directly or indirectly, for any shortfalls as a result of loan delinquency. As a result, we derive financial guarantee income from such guarantee, which we record using the expected cost-plus-margin approach. Since November 2017, we have been rapidly migrating towards a non-guarantee loan facilitation model where financial institutions will bear the credit risk in the event of customer defaults and we undertake no obligation to provide make-up payments for loans facilitated by us through any form of risk reserve deposit, insurance or guarantee, which frees up cash for our working capital. Since the inception of this new cooperation model, the percentage of loans we facilitated under the non-guarantee loan facilitation model has steadily increased reaching approximately 56.2% and 71.0% of our credit services in the six months ended June 30, 2018 and in the month of June 2018. The outstanding principal balance of loans facilitated under this model increased from RMB527.3 million as of December 31, 2017 to RMB3,154.2 million (US$476.7 million) as of June 30, 2018. We receive solely service fees under this non-guarantee loan facilitation model without taking any credit risk, and expect to continue to transition to this model.

        For additional information as to the details of our collaboration with financial institution partners, see "Business—Our Financial Institution Partners."

Ability to Compete Effectively

        We compete for both customers and financial institution partners with a variety of participants in the consumer finance industry, ranging from traditional financial institutions to emerging online finance providers and marketplaces. We must compete effectively in order to grow our mobile platform and increase our revenues. We intend to continue to invest in product development, technology infrastructure and our sales and marketing capabilities to address the competition we face.

101


Table of Contents

Credit Performance Data

Delinquency rate by balance

        As of December 31, 2016 and 2017 and June 30, 2018, the M3+ delinquency rate by balance of credit card balance transfer and cash advance facilitated by us was 0.42%, 0.82% and 1.66%, respectively. The increase in the M3+ delinquency rate by balance was primarily driven by the changes in our loan facilitation volume. The M3+ delinquency rate by balance is defined as the total outstanding balance for all loans (covering all vintages) of a customer for which any installment repayment is over 90 calendar days past due as of a particular date, divided by the total outstanding balance of all loans (covering all vintages). Credit loans and loan that have been charged-off are not included in the calculation. In 2016, as we were at an early stage of our business and had just begun facilitating loans, the proportion of loans in more recent vintages (and therefore with comparatively less delinquent loans due to their younger vintage) was higher as a percentage of total loans outstanding, resulting in a lower M3+ delinquency rate. In 2017 and the six months ending June 30, 2018, our operations grew and our total loans outstanding increased, resulting in a decrease in the proportion of loans in more recent vintages as a percentage of our total loans outstanding, which led to a higher M3+ delinquency rate.

        We expect that, as our operations achieve a certain scale, the vintage makeup of our total loans outstanding will stabilize and, as a result, our M3+ delinquency rate will be more predictable. We have presented the delinquency rate by vintage below to illustrate the delinquency rate without the impact discussed above. As a result of recent regulatory changes, in particular the issuance of Circular 141, our delinquency has also been impacted. The release of Circular 141 in December 2017 tightened industry regulations and resulted in an unexpected short-term volatility of borrower credit performance across the industry. Since the release of Circular 141, online lending platforms have ceased extending "cash loans" as defined under Circular 141, and furthermore, a number of online lending platforms have had to significantly alter their business models or suspend operations altogether. This has led to liquidity shortage for certain borrowers who had relied on other lending platforms to repay our loans. Our delinquency rate was relatively less affected than that of the overall industry since we focus on serving credit-proven millennials in China who have a better credit profile compared to the customers of our peers. That said, we did observe higher delinquency in the second quarter of 2018 with our M3+ delinquency rate by balance having increased to 1.66% as of June 30, 2018 from 0.82% as of December 31, 2017.

        As of December 31, 2016 and 2017 and June 30, 2018, the charge-off rate(1) of credit card balance transfer and cash advance facilitated by us was 0.04%, 1.23% and 2.66%, respectively. Since the charge-off rate is defined as the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due as of a particular date, divided by the total outstanding balance of all loans assuming that no loans are charged off, we would expect the charge-off rate to gradually increase over time. This is because the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due will accumulate over time and increase as our loan facilitation volume increases, while the total outstanding balance of all loans will increase as we facilitate more loans but at the same time also decrease as the loans are repaid. Our charge-off rate for credit card balance transfer related to guarantee liabilities, which is calculated as the cumulative balance of unpaid (due) principal 210 calendar days past due as of a particular date, divided by the then-outstanding balance of the loans under financial guarantee, generally increased primarily due to: (1) the actual risk performance of the loans facilitated by us increased, as evidenced by the increase in average expected default rate used in calculating guarantee liability, which is based on assessing actual risk performance, from 0.45% for 2016 to 1.09% for 2017 and further to 1.84% for the six months ended June 30, 2018. The increase in actual risk performance resulted in a increase in the loan amounts outstanding that are delinquent, therefore also impacting our charge-off rate; and (2) beginning in the second quarter of 2017, we began facilitating loans under two risk profiles, namely level VII and level VIII, both of which have a relatively high APR. See "Business—Our Loan Application and Approval Process—Pricing Mechanism" for more details. The total loan volume outstanding for these two risk profile levels increased from zero as of December 31, 2016 to RMB189.4 million as of December 31, 2017, and further to RMB303.7 million as of June 30, 2018, which resulted in a general increase in the risk level and charge-off rate associated with balance transfer products.

   


(1)
Charge-off rate of credit card balance transfer and cash advance represents the total loan principal for all loans of a customer for which any installment repayment is over 210 calendar days past due as of a particular date, divided the total outstanding balance of all loans assuming that no loans are charged off. Loans are not guaranteed by us and credit loans are not included in the charge-off rate calculation.

102


Table of Contents

Delinquency rate by vintage

        The following charts show the historical M3+ delinquency rate by vintage for credit card balance transfer and cash advance facilitated through our platform as of June 30, 2018,(1) which was below 1.5%.


M3+ delinquency rate by vintage of credit card balance transfer and cash advance

GRAPHIC


M3+ delinquency rate by vintage of credit card balance transfer

GRAPHIC

   


(1)
The delinquency rate by vintage is presented on an M3+ basis, which means that only loans that are more than 90 calendar days (equal to three months on book) past due within a particular vintage are taken into consideration. As a result, the charts shown begin on the 4th Month on Book and ends on 15th Month on Book, the period between these two points is 12 months, which corresponds to the maximum loan term of the credit services facilitated by us. For example, for loans that are facilitated in March 2017 which would be included in the vintage curve of 1Q2017, it would take until June 2018 for all amounts of such loans that are M3+ delinquent to show up in the 1Q2017 vintage curve. This is because for a loan with a tenor of 12 months facilitated in March 2017, the latest possible time it could become M3+ delinquent would be June 2018, as the last payment due from the borrower would be March 2018, and we would need to wait until June 2018 for that payment to be at least 90 days delinquent, and June 2018 corresponds to the 15th month on Book for the vintage curve of 1Q2017.

103


Table of Contents


M3+ delinquency rate by vintage of cash advance

GRAPHIC

        As of July 31, 2018, the M3+ delinquency rate by vintage of the January 2018 customer cohort which have borrowed balance transfer products was 0.52%, and of the customers within such cohort who have borrowed a credit loan was 0.16%.

Key Components of Results of Operations

Net operating revenue

        The following table sets forth the breakdown of our net operating revenue, both in absolute amounts and as a percentage of our net operating revenue, for the periods presented:

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2017   2018  
 
  RMB   %   RMB   US$   %   RMB   %   RMB   US$   %  
 
  (In thousands, except percentages)
 
 
   
   
   
   
   
  (unaudited)
 

Loan facilitation service fees

    31,644     59.7     86,439     13,063     35.9     31,277     33.6     133,804     20,221     58.2  

Post-facilitation management service fees

    3,843     7.2     16,073     2,429     6.7     5,583     6.0     9,234     1,396     4.0  

Financial guarantee income

    5,658     10.7     43,284     6,541     18.0     16,118     17.3     20,382     3,080     8.9  

Recommendation fees

    11,072     20.9     87,434     13,213     36.4     31,490     33.8     65,806     9,945     28.6  

Other revenue

    567     1.1     2,318     350     0.9     729     0.8     2,281     345     1.0  

Net interest income:

                                                             

Interest income from convertible loans

                                146     22     0.1  

Interest income from short-term investments

    237     0.4     610     92     0.3     426     0.1     36     5     0.0  

Interest income from loan receivable

            56,540     8,544     23.5     2,992     3.5     91,211     13,784     39.7  

Less: interest expense of funding debt

            (37,296 )   (5,636 )   (15.5 )   (1,223 )   (1.3 )   (55,359 )   (8,366 )   (24.1 )

Sub-total

    237     0.4     19,854     3,000     8.3     2,195     2.4     36,034     5,445     15.7  

Less: Loan provision losses

            (14,972 )   (2,262 )   (6.2 )   (4,282 )   4.6     (37,547 )   (5,674 )   (16.3 )

Net operating revenue

    53,021     100.0     240,430     36,334     100.0     83,110     100.0     229,994     34,758     100.0  

104


Table of Contents

        Our net operating revenue is composed of loan facilitation service fees, post-facilitation management service fees, financial guarantee income, recommendation fees, other revenue and net interest income, less loan provision losses.

    Loan facilitation service fees, post-facilitation management service fees and financial guarantee income

        At the inception of a loan, we calculate fees for each of facilitating loan origination and for providing ongoing monthly services. Loan facilitation service fees represent loan facilitation fees earned from institutional funding partners for facilitating loan origination, including referring users and providing transaction solutions. Post-facilitation management service fees represent service fees earned from account management services and collection services. In the case of loans facilitated under the third-party guarantee and direct guarantee facilitation models, we also provide guarantee services to financial institution partners from which we receive additional financial guarantee income. Financial guarantee income represents income received from guarantees provided, directly or indirectly, by us to cover any loss suffered by institutional funding partners when the customers default, under our third-party guarantee and direct guarantee facilitation models. For each of these fees, we estimate a standalone selling price for each of them based on an expected cost plus a margin approach. In particular, we consider three factors when allocating the amount of fee to financial guarantee income: (i) the size of the guaranteed loan, (ii) the tenor of the loan and (iii) the expected default rate of the loan. As we record financial guarantee income only when our guarantee obligation is released (when a customer repays their loan) or fulfilled (when a customer defaults and we fulfill our guarantee) and not when the loan is facilitated, there may be a delay in the recognition of our financial guarantee income as compared to when the loan is facilitated. We expect that the allocation of our financial guarantee income will be primarily determined by the volume of loans facilitated under our third-party and direct guarantee loan facilitation models and the expected default rate associated with the loans guaranteed. A portion of the total fees are first allocated to guarantee according to ASC 460 based on its fair value, and the remainder is then allocated to the loan facilitation and post-facilitation management services based on their relative fair values.

        We collect the entire amount of these fees as one combined service fee from our financial institution partners for our credit services, including credit card balance transfer, cash advance and credit loans. For credit card balance transfer and cash advance, such service fee is typically set as the difference between the interest paid by the customers and a fixed rate of return to the financial institutions. For credit loans, such service fee is typically set as the aggregate amount of a fixed percentage of interest paid by the customers and part of the service fee is contingent on the credit performance of the loan meeting pre-agreed requirements. Currently, we do not charge our customers any fees.

        See "—Critical Accounting Policies, Judgments and Estimates—Revenue recognition" for further information.

    Recommendation fees

        Recommendation fees represent fees earned from third-party financial service providers for our recommendation services, including online credit service providers, credit card issuers, insurance companies, wealth management providers and others. Recommendation fees for credit services are charged in one of the following manners: (i) on a per-action basis, where action is typically defined as a click-through to the third-party platform or a completed application, and (ii) at a fixed percentage of the principal amount of loans approved by third-party financial service providers which are providing credit-related services plus a variable service fee. Recommendation fees for credit card applications are charged on a per-success basis, where the success is typically defined as the issuance of a credit card. Recommendation fees for insurance products are charged either at a fixed amount for each customer recommended to the third-party platform, or at a fixed percentage of the insurance premium paid by

105


Table of Contents

the customers. Recommendation fees for wealth management products are charged at a fixed percentage of the assets under management of the investment options. We do not take any credit risk for our recommendation services.

        The following table sets forth the breakdown of our recommendation fees into fees from credit-related and non-credit recommendation services, in absolute terms and as a percentage of total recommendation fees, for the periods presented:

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2017   2018  
 
  RMB   %   RMB   US$   %   RMB   %   RMB   US$   %  
 
  (In thousands, except percentages)
 
 
   
   
   
   
   
  (unaudited)
 

Recommendation fees

                                                             

Credit-related

    11,072     100.0     76,012     11,487     86.9     29,972     95.2     48,170     7,280     73.2  

Non-credit

            11,422     1,726     13.1     1,518     4.8     17,636     2,665     26.8  

Total

    11,072     100.0     87,434     13,213     100.0     31,490     100.0     65,806     9,945     100.0  

    Other revenue

        Other revenues include the overdue payment charges paid by customers.

    Net interest income

        Net interest income represents interest income, net of interest expense, received by trusts we establish in collaboration with trust companies. Interest income represents the income generated by interest charged for loans extended by such consolidated trusts to our customers, and interest income from short-term wealth management products. Interest expense represents payments to the investors of such consolidated trusts who have subscribed to the senior tranches of the trusts in exchange for a fixed rate of return on the investors' investment.

        We are considered as a primary beneficiary of such trusts and have consolidated the assets, liabilities, results of operations and cash flows of such trusts, as we direct the activities of these trusts and also have the right to receive benefits and the obligation to absorb losses from the trusts. We hold a variable interest in such trusts as we are entitled to the residual profits in such trusts after paying the principal and the pre-agreed return to fund investors and have agreed to underwrite the loans by matching credit needs from our customers with funds of the trust. We also direct the activities of the trusts.

        Under the direct guarantee and third-party guarantee loan facilitation models with trusts, we may also subscribe to the subordinated tranches of the trusts with our own capital to provide an alternative form of guarantee to the trust investors subscribing to the senior tranches of the trusts and the trust companies establishing the trusts. No payments are made to the subordinated tranche until the senior tranche units are fully paid. The assets of the trusts can only be used to settle obligations of such trust.

    Loan provision losses

        Loan provision losses represent provisions made on loans originated by our consolidated trusts, net of reversals. We maintain an allowance for loan losses adequate to provide for losses that can be reasonably anticipated, which we evaluate on a quarterly basis based on a variety of factors. See "—Critical Accounting Policies, Judgments and Estimates—Net loan receivables and provision for loan losses."

106


Table of Contents

Operating expenses

        Our operating expenses consist of facilitation and servicing expenses, sales and marketing expenses, general and administrative expenses and guarantee loss. The following table sets forth the breakdown of our operating expenses, both in absolute amount and as a percentage of our total operating expenses:

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2017   2018  
 
  RMB   %   RMB   US$   %   RMB   %   RMB   US$   %  
 
  (In thousands, except percentages)
 
 
   
   
   
   
   
  (unaudited)
 

Facilitation and servicing expenses

    42,023     28.6     83,757     12,658     27.5     39,859     30.4     44,815     6,773     22.0  

Guarantee loss

    14,020     9.5     47,632     7,198     15.6     17,696     13.5     18,082     2,733     8.9  

Sales and marketing expenses

    50,285     34.2     97,873     14,791     32.2     39,968     30.5     95,718     14,465     47.0  

General and administrative expenses

    40,725     27.7     75,258     11,373     24.7     33,618     25.6     45,091