Even though the shares would recover some, the price is still down around 8% since the announcement.
Given the challenging macro outlook of the China auto industry in 2019, Uxin’s divestment of its loan facilitation business will significantly reduce the company’s credit risk exposure and allow the company to focus on what it does best, which is online used-car transaction facilitation.
As an online used-car marketplace platform in China, Uxin made money through transaction and loan-facilitation fees in two segments, 2C (transaction facilitation involving consumers) and 2B (transaction facilitation involving businesses like car dealers or corporates). Uxin also provided a financing service, wherein it partnered with several third-party financing providers to originate the loans. Uxin’s role, in this case, is the loan facilitator.
As of FY 2018, Uxin generated approximately $257 million to facilitate the loans from its 2C business segment. As can be seen in its annual statement, the loan facilitation business was the largest component of its revenue in FY 2018. As a result, Uxin’s decision to divest its loan facility business was met with negative price action post the announcement in Q2.
Uxin’s recent divestment means that the company only generates revenue from the commission and value-added service revenue streams across its 2C and 2B businesses. The company also divested its 2C intra-regional business and revoked its guarantee services in its 2C cross-regional business. The guarantee services relate to Uxin’s guarantee against automobile principal and interest payment default as part of its service to the third-party financing partners.
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