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Major Chinese P2P Lender Caogen Touzi Gets In Trouble

Caogen Touzi, once star P2P online lender in China, becomes the latest troubled online lending platform, extending a surge in P2P collapses starting from June this year.

The company missed payment of principal and interest to some investors on Wednesday and late that day, investors found they were unable to reach the company’s management and called the police about the issue.

It happened after Jin Zhongkao, founder and chairman of the company, showed up in the office only hours before to meet its users and promised that the company will do its best to secure safety of its users’ investment and the management will never run away.

The investors on the platform have been worried about the safety of their money after the company posted a statement on its website warning that it’s experiencing an unprecedented liquidity crisis staring from late June due to deteriorating business environment and damped investors’ confidence.

It had agreed to extend loan terms by three months starting from July 30th for borrowers who are having difficulty in repaying debts, during which the company will start liquidating those borrowers’ assets to pay investors, it added in the statement.

Caogen Touzi’s case is significant because the company is one of China’s biggest P2P online lender with more than 9 million registered users, including 1.15 million active users and it booked revenues of 400 million yuan (US$62.25 million) and after-tax profits of 200 million yuan (US$31.13 million) in 2017, according to the data posted on its website.

Back in June, the Hangzhou-based company said it raised 2.3 billion yuan (US$357.8 million) in series D round led by Shanghai-listed Geo-Jade Petroleum, a Chinese real estate development and oil exploration and production firm. That’s the biggest one-time investment in the P2P industry.

However, immediately after the report about Caogen Touzi’s trouble, Geo-Jade denied the figure of 2.3 billion yuan and said it was only considering 500 million investment. It issued an investment proposal but the deal was sealed, added Geo-Jade.

Founded in 2013, Caogen Touzi means grassroots investments in Chinese and the firm provides investment products for small and medium-sized enterprises (SMEs) and individuals. It also provides collateral loans backed by cars and houses, and consumer installment credit products in rural areas.

In 2017, the firm raised a undisclosed amount of series C round led by China Media Group Co., Ltd. In 2016, the firm raised 1 billion yuan (US$156 million) series B round from Guangzhou Industrial Investment Fund Management Co., Ltd. In 2015, the firm raised US$10 million series A round from Shunwei Capital founded by Lei Jun, the founder of the recently listed smartphone maker Xiaomi.

China’s online lending industry has seen rapid growth since 2007 without significant regulation. Default rates have been soaring since June.

In May, only 10 platforms were reportedly in trouble, however, by the end of June, that number had surged to 63. By the end of July, 163 platforms were on the concern list.

P2P lending is a tempting and easy investment option for individual investors because the loans usually promise 8-12 per cent interest rates, according to Home of Online Lending, of which many mature within a year, much higher than the 2.75 per cent rate for three-year fixed deposits at most banks.

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