Hall of Shame


LexinFintech Holdings Ltd (LX US)

Year: 2020

LexinFintech Holdings Ltd. is a holding company. The Company is primarily engaged in providing online direct sales services and online consumer finance services. The Company's online consumer finance platform, Fenqile, offers customers personal instalment loans, instalment purchase loans and other loan products. Through its online investment platform, Juzi Licai, the Company matches funding from individual investors with customer loans. The Company also offers Le Card credit line to its customers. The Company serves the credit needs of the customers aged between 18 and 36 in China.

The Company listed on the Nasdaq in December 2017 raising US$124.20M. 

August 25, 2020 Grizzly Research issued a report; "We Believe LexinFintech Holdings Ltd. is a Leverage Time Bomb About to Explode".  Grizzly believed that LexinFintech’s business model is deeply flawed and set to collapse. Grizzly said tha at first glance, investors might be impressed by the company’s growth in its loan origination (from RMB22.2B in 2016 to RMB126.0B in 2019) and its top and bottom-line growth (revenues grew from RMB4.3B in 2016 to RMB10.6B in 2019, with earnings per ADS of loss of RMB4.03 in 2016 to profit of RMB12.29 (~US$1.76) in 2019. However, it added that upon a closer look, it becomes apparent why LexinFintech is a ticking time bomb about to explode. It based this on the following issues it uncovered in its research:

  • The structure utilized by LexinFintech exposes its shareholders to enormous losses by guaranteeing payment of loans while putting Chinese lenders first; a quintessential “Heads I win, tails you lose” situation for current shareholders.
  • LexinFintech is reporting artificially low delinquency rates by essentially giving borrowers who are already in default new funds to make payments. This has led to a rapidly deteriorating credit quality.
  • LexinFintech has historically charged Chinese consumers enormous interest rates, often above the legal 36% usury rate. New regulation in China will significantly limit how much LexinFintech can charge to 15.4%, therefore putting the entire business model at risk.
  • LexinFintech seems to be still actively engaged in direct peer-to-peer lending. The company had supposedly already halted this, per regulatory pressure. Other companies that have broken p2p restrictions have mostly been shut down and some executives jailed. LexinFintech could face similar regulatory pressure.
  • The Corona Virus pandemic and the consequent shut down of the economy has put a massive number of consumers and consumer loans in default or delinquency.
  • Several employees run businesses that are not disclosed by LexinFintech as related parties. Grizzly identified these businesses as service providers or in the same field as LexinFintech. The opportunity to manoeuvre costs and siphon off money unbeknownst to investors and auditors is of concern.
  • Grizzly suspect that LexinFintech sold one business, unbeknownst to investors, to the Chairman's relative.
  • Grizzly uncovered giant misstatements in the past and weakness in financial reporting that paint the picture of a company whose financials can simply not be trusted.
  • A review of basic web traffic analysis leads Grizzly to question if the purported reported volume by LexinFintech is even real.
  • Despite LexinFintech management touting its Tencent background, major shareholders, including JD.com, are selling off. Thus showing a lack of confidence in LexinFintech’s future.

In conclusion, Grizzly says that US investors are essentially guaranteeing payment of what it believes to be predatory consumer loans. Beyond that, it believed LexinFintech is making a conscious effort to misrepresent the viability of its business and the credit quality of its platforms. In Grizzly's opinion the company is not viable under new Chinese regulations.

Grizzly Research: We Believe LexinFintech Holdings Ltd. is a Leverage Time Bomb About to Explode, 25 Aug 2020
LexinFintech: Annual Report YE - Dec. 2019
LexinFintech: Annual Report YE - Dec. 2018
LexinFintech: Annual Report YE - Dec. 2017