Micro Connect, a microfinance platform co-founded by former Hong Kong Exchange CEO Charles Li, has filed for an initial public offering (IPO) to bring cashflow-based investing, a nascent model, to the Hong Kong Stock Exchange, according to a filing on Wednesday.
Cashflow-based investing is a way of funding where a business gets money upfront. In return, the business agrees to share a portion of its future earnings with the investor until a certain amount has been paid back. This repayment depends on how well the business performs in generating those future earnings.
The listing proceeds will go into making cashflow-based investments, as well as for working capital and general corporate uses. Proceeds that are not immediately deployed may be used in money market funds or similar products, per the filing. HSBC Corporate Finance (Hong Kong) Limited acted as the sole sponsor.
Founded in 2021, Micro Connect was set up at a time when over 52 million Chinese micro and small businesses had been trying to recover from the aftermath of the COVID-19 pandemic. The firm taps into a growing market in which micro, small, and medium enterprises (MSMEs) in China are underserved in accessing financing, as traditional channels such as bank loans and venture capital deem the MSMEs’ cash flow to be too small to serve.
But such a market remains at a nascent stage — Micro Connect cited that the cashflow-based investing model could be complex and involve novel translation and operational structures, meaning that there may be insufficient protections of investor interests. Established trading platforms and market infrastructures, besides Micro Connect (Macao) Financial Assets Exchange (MCEX), could be another risk factor.
MCEX is the world’s first licensed revenue-based financing exchange that connects institutional capital with MSMEs through digital solutions, wholly owned by Micro Connect Group.
“At the same time, given the early-stage development of the cashflow-based investment market, the medium- to long-term value and sustainability of such investments remain uncertain. The continued viability of cashflow-based investing depends on evolving market acceptance and the reliability of cashflow projections,” the firm said in the application.
Previously, the firm had drawn sharp criticism and heated discussion in China in late 2023 over the legality, credit risk control, and the lack of regulation surrounding the model.
The IPO application, which was made under Chapter 21 (allowing investment firms to primarily invest in listed or unlisted securities), comes almost two years after its $458-million Series C funding round in August 2023.
The Series C round roped in a wide range of investors from Europe, North America, the Middle East, and Greater China, including leading long-only investment managers, private equity and venture funds, university endowments, internet platforms, and consumer retail groups.
Most recently, the Hong Kong-based firm also signed a syndicated asset-backed loan facility of up to $200 million, with initial credit support of $50 million from HSBC, according to an announcement in February 2024. The signing took place after a $25-million asset-backed loan facility from the same bank in December 2022.
Micro Connect’s public listing rides on a Hong Kong IPO boom that is expecting 40 IPOs, with proceeds of HK$ 108.7 billion ($13.8 billion) to go public in the city’s bourse in the first half of 2025, according to public information as of June 11.
The data marked a 33% growth in terms of IPO deal count and a 711% surge in IPO proceeds, compared to the same period of 2024, according to consultancy firm EY’s analysis. The IPO proceeds from the first half of 2025 are expected to exceed the total sum raised in 2024, thanks to several mega IPO deals.
