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Lufax’s Contrarian Move: Huge Dividend Amidst Strategic Downsizing

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Lufax’s Contrarian Move: Huge Dividend Amidst Strategic Downsizing

The Unconventional Dividend

Lufax Holding Ltd.’s recent announcement of a substantial special dividend has left investors scratching their heads. At $2.42 per American depositary share (ADS), roughly half the Friday closing price, the payout is a substantial chunk of change.

A Pivot Towards Quality

It’s a curious move from Lufax, a company that has been steadily shrinking in size. The firm slashed its loan portfolio by 45% last year and is eyeing a further 32% reduction this year as part of its strategy to focus on higher quality borrowers.

Chairman and CEO YongSuk Cho’s comments on the earnings call underscore the magnitude of the transformation: “To sum up, during the fourth quarter, with the completion of (our) de-risking initiative, the downsizing of our business is under control and we have strong visibility of our businesses.”

Investor Wariness

The dividend bonanza, however, has not sparked the anticipated excitement among investors. The reticence is emblematic of the prevailing skepticism towards private Chinese online lenders, rooted in lingering concerns over regulatory oversight and economic headwinds.

Five to six years ago, this sector came under intense scrutiny due to regulatory crackdowns, with doubts persisting to this day about risk management practices and economic uncertainties.

Lufax’s pivot towards a consumer-centric lending model, coupled with a more selective approach to guaranteeing loans, highlights the company’s commitment to improving loan quality and profitability.

Long-Term Viability

While Lufax’s dividend gesture may catch the eye of short-term investors, the long-term outlook remains a question mark. The broader fintech landscape in China is marked by a trend of offering generous dividends, but sustained investor confidence hinges on effectively navigating economic challenges and maintaining robust risk management practices.

Ultimately, Lufax’s bold move to reward shareholders with a substantial dividend amidst a strategic downsizing begs the question: Will this unorthodox playbook pay off in the long run?

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.