SEC Company Response from Akso Health Group (AHG) (CIK 0001702318) (AHG) — Apr 30, 2019
Akso Health Group (AHG) (CIK 0001702318)
Date: April 30, 2019 · CIK: 0001702318 · Accession: 0001104659-19-024855
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-38245
Referenced dates: March 29, 2019
Letter
VIA EDGAR AS CORRESPONDENCE Division of Corporation Finance, Office of Financial Services Securities and Exchange Commission Form 20-F for Fiscal Year Ended March 31, 2018 Filed July 30, 2018 Form 6-K filed December 3, 2018 File No. 001-38245
Dear Mr. Henderson and Mr. Klein,
On behalf of our client, Hexindai Inc., a Cayman Islands company (the “Company”), we are submitting this letter (the “Response Letter”) to respond to the comments of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter dated March 29, 2019 (the “Comment Letter”) relating to the Annual Report on Form 20-F filed by the Company on July 30, 2018 (the “Annual Report”) and the Form 6-K filed on December 3, 2018.
The Company intends to include the disclosure required by the Staff in its annual report on Form 20-F for the fiscal year ended March 31, 2019 to be submitted in July 2019 (the “2019 Annual Report”). Set forth below are the responses of the Company to the comments in the Comment Letter. For ease of reference, each comment contained in the Comment Letter is printed below in bold and is followed by the Company’s response.
Hogan Lovells is an affiliated business of Hogan Lovells International LLP, a limited liability partnership registered in England and Wales.
Hogan Lovells is part of an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses, with offices in: Alicante Amsterdam Baltimore Beijing Birmingham Boston Brussels Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Johannesburg London Los Angeles Luxembourg Madrid Mexico City Miami Milan Minneapolis Monterrey Moscow Munich New York Northern Virginia Paris Perth Philadelphia Rome San Francisco São Paulo Shanghai Silicon Valley Singapore Sydney Tokyo Warsaw Washington, D.C. Associated Offices: Budapest Jakarta Riyadh Shanghai FTZ Ulaanbaatar Zagreb. Business Service Centers: Johannesburg Louisville.
The word “partner” is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing. Certain individuals, who are designated as partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members. For more information about Hogan Lovells, the partners and their qualifications, see www.hoganlovells.com.
Hogan Lovells is a member of the Sino Global Legal Alliance with offices in: Beijing Changsha Chengdu Chongqing Dalian Guangzhou Hangzhou Hong Kong Jinan Kunming Lanzhou Shanghai Shenyang Shenzhen Tianjin Wuhan Xiamen Xian and of the Pacific Rim Advisory Council with member offices in: Argentina Australia Brazil Canada Chile China (Mainland) Colombia France Hong Kong India Indonesia Japan Korea Malaysia Mexico Netherlands New Zealand Peru Philippines Singapore Taiwan Thailand USA Venezuela.
M D R Parsons
B May
N W O Tang
E I Low
J P Kwan
S K S Li
L H S Leung
Counsel
A D E Cobden
K K S Wong
K C W Lee
E Seto
J S F Yim
Foreign Legal Consultants
M A Zaldivar
(New York and Florida, USA)
S Peepels
(Pennsylvania, USA)
S Tang
(New York, USA)
Item 4. Information on the Company
Our Technology and Risk Management System, page 58
1. We note your disclosure of your credit grading scores and system on pages 59 and 60, which appears to show that approximately 76% of your loan transaction volume is with borrowers with a credit grade of A or B. Subsequently, we note from your Form 6-K filed on February 28, 2019 that your net revenue for the three months ended December 31, 2018 decreased by 95.6% compared to the three months ended December 31, 2017 due to implementation of stricter credit scoring standards, which downgraded the number of borrowers. In future filings, please revise your disclosures to address the following:
· Provide a detailed discussion of all the reasons leading you to implement stricter credit scoring standards, including the exact date that the new standards were implemented, and why it was necessary, considering that you previously disclosed 76% of your loan transaction volume was with borrowers having a credit grade of A or B. For example, ensure that your disclosure discusses whether the need to enforce stricter credit scoring standards was as a result of a change in regulatory requirements, communications of non-compliance by a governing body, difficulties with assessing credit grades under your previous system, whether there was a notable increase in the delinquency and charge-off rates of your existing borrowers, among other possible factors.
RESPONSE:
In response to the Staff’s comment, since the second quarter of fiscal year 2019, the consumer credit and marketplace lending industry of the PRC has experienced significant turmoil due to tightened industry regulation. Some consumer lending marketplaces were suspended or shut down due to their failure to meet the heightened requirements imposed by PRC regulatory authorities, including requirements on the qualification, operation model, information disclosure and custody accounts practice. Due to this development, investor sentiment has been low across the market, resulting in a significant reduction in the amount of investment on the Company’s platform.
In light of this development, the Company did not implement any change to its existing credit scoring standards, but rather began to apply stricter internal control in the later half of fiscal year 2019. Such internal control includes conducting credit background investigations with heightened diligence and cooperating with third-party credit reporting agencies to further develop the Company’s credit check system. In the event a borrower fails to meet the requirements of the Company’s background check, the Company denies his application for loans during the application process. For borrowers who meet the Company’s heightened due diligence standards, due to limited investment available, the Company can only successfully facilitate loans where both the Company chooses the borrowers with better credit profiles, and the selected borrowers are willing to choose the Company to extend loans considering factors such as service fees, interest rates and approval efficiency of different platforms in an uncertain market. These reasons above resulted in the decline in the number of borrowers.
Since the Company derives its revenue mainly from charging service fees from borrowers after successful facilitation of loans, the decline in both the amount of investment on the Company’s platform and the number of borrowers who meet the Company’s heightened due diligence standards resulted in the decrease in revenue for the three months ended December 31, 2018.
The Company respectfully acknowledges the Staff’s comment and will provide a sufficient and thorough narrative based on the above discussion to supplement the disclosure on the reasons for the quarterly changes in the 2019 Annual Report.
· Provide detailed disclosure of the processes you are implementing, including systems used, milestone dates and data migration of information, for your new credit scoring standards and specifically how the new processes are an enhancement to your previous processes. As part of your disclosure, explain why your previous credit scoring system was insufficient.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
· Provide a reconciliation for how the previous credit grades will fit into your new credit scoring standards. For example, disclose how those borrowers that previously had a credit grade of A or B under your previous system would be classified under your new credit scoring standards.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
· Given the significant decline in revenues due to stricter credit scoring standards, disclose whether the borrowers under your previous credit scoring system would be permitted as borrowers under your new credit scoring standards at all. In this regard, quantify the amount of revenue associated with borrowers in previous periods that would not meet your stricter credit scoring criteria currently in place.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
The Company further advises the Staff that the decline in revenues is mainly attributable to the industry development as described in the response to the first bullet point, which resulted in the lower number of loans the Company successfully facilitates. Specifically, the reduction in the number of loans is caused by (1) the decline in the amount of investments from investors due to the industry turmoil caused by tightened regulation; and (2) the decline in the number of borrowers due to the application of the Company’s stricter internal control. Since the Company derives its revenue mainly from charging service fees from borrowers after successful facilitation of loans, revenue for the three months ended December 31, 2018 decreased naturally.
· Disclose the number of borrowers that you have denied from participating on your platform since implementing the new credit scoring standards.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
Item 5. Operating and Financial Review and Prospects
B. Liquidity and Capital Resources
M3+ Net Charge-Off Rates, page 110
2. In your future filings, please revise your disclosures to discuss how you use the M3+ Net Charge-Off Rates and its use for investors, including a discussion of the reasons driving the change in the charge-off rates from period to period.
RESPONSE:
The Company respectfully acknowledges the Staff’s comment and will include in the 2019 Annual Report explanations on the Company’s use of the M3+ Net Charge-Off Rates and its use for investors, together with a discussion of the reasons driving the change in the charge-off rates from period to period.
Notes to the Consolidated Financial Statements
Note 4 - Loan Receivable, page F-24
3. We note that you have begun initiating loans through your consolidated VIE, Wusu, beginning on January 1, 2018 and had a loans receivable balance of $28.7 million as of March 31, 2018, which has subsequently increased through December 31, 2018. We also note that you did not have an allowance for loan losses recognized on these loans as of March 31, 2018. In your future filings, please revise your disclosures to address the following:
· Disclose all information required by ASC 310-10-50 and other material information about your loans, including an aging analysis of your loan portfolio, specific terms of the loans, whether any loans are to related parties, any modifications of terms, accounting policy for those modifications, your troubled debt restructuring (“TDR”) policy, performance and non-performance characteristics of the loan portfolio, your policy for placing loans on non-accrual status, and credit quality indicators.
· Expand the disclosures in your Critical Accounting Policies, Judgments and Estimates to provide specific details of all the critical factors you considered in your determination of the allowance for loan losses, including a specific discussion of each of the various credit quality indicators noted in the bullet point above, as well as your consideration of historical delinquency, charge-off and loss rates.
· Disclose a rollforward of your allowance for loan losses.
· Provide a similar level of disclosure on your receivables balance and determination of the allowance for doubtful accounts, which we note had a balance of $20.3 million as of September 30, 2018.
RESPONSE:
The Company respectfully acknowledges the Staff’s comment and will disclose in the 2019 Annual Report all information required by ASC 310-10-50 and other material information about the loans, including an aging analysis of the loan portfolio, material terms of the loans, whether any loans are to related parties, any modifications of material terms, accounting policy for any modification if applicable, its TDR policy, performance and non-performance characteristics of the loan portfolio, its policy for placing loans on non-accrual status, and credit quality indicators.
Furthermore, the Company respectfully acknowledges the Staff’s comment and will expand the disclosures in Critical Accounting Policies, Judgments and Estimates in the 2019 Annual Report to provide specific details of all the critical factors it considered in its determination of the allowance for loan losses, including a specific discussion of each of the various credit quality indicators noted in the bullet point above, as well as its consideration of historical delinquency, charge-off and loss rates. The Company will also disclose a rollforward of its allowance for loan losses.
The Company proposed to disclose the critical accounting policy for loans receivable as follows:
“Loans receivable, net
During the fiscal year ended March 31, 2018, the Company started to engage in the micro-lending business through Wusu Company to borrowers in China. Loans receivable represent loan originated by the Company, which is due from the borrowers. As of March 31, 2019 and 2018, the loans are typical with loan terms ranging from 12 months to 36 months with annual interest charge from 6% to 8%, and 12 months with annual interest charge of 8%, respectively. The Company has the intent and the ability to hold such loans for the foreseeable future or until maturity or payoff.
Loans receivable are recorded at unpaid principal balances, net of allowance for loan losses that reflects the Company’s best estimate of the amounts that will not be collected.
Allowance for loan principal and interest receivables
The Company considers the loans to be homogenous as they are all unsecured loans and the credit profiles of the borrowers are also similar. Therefore, the Company applies a consistent credit risk management framework to the entire portfolio of loans in accordance with ASC 450-20, Loss Contingencies.
The allowance for the loan portfolio is determined using a roll rate-based model. The roll rate-based model stratifies the loans principal, interest an
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CORRESP
1
filename1.htm
30 April 2019
Hogan Lovells
11th Floor, One Pacific Place
88 Queensway
Hong Kong
霍金路偉律師行
香港金鐘道88號
太古廣場一座11樓
T 電話 +852 2219 0888
F 傳真 +852 2219 0222
www.hoganlovells.com
Stephanie Tang
Partner
stephanie.tang@hoganlovells.com
D +852 2840 5026
1185388
VIA EDGAR AS CORRESPONDENCE
Mr. Michael Henderson
Staff Accountant
Mr. Robert Klein
Staff Accountant
Division of Corporation Finance, Office of Financial Services
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Partners
T A Fletcher
T C Hill
M Lin
O Chan
D Y C So
C J Dobby
Re:
Hexindai Inc.
Form 20-F for Fiscal Year Ended March 31, 2018
Filed July 30, 2018
Form 6-K filed December 3, 2018
File No. 001-38245
Dear Mr. Henderson and Mr. Klein,
On behalf of our client, Hexindai Inc., a Cayman Islands company (the “Company”), we are submitting this letter (the “Response Letter”) to respond to the comments of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter dated March 29, 2019 (the “Comment Letter”) relating to the Annual Report on Form 20-F filed by the Company on July 30, 2018 (the “Annual Report”) and the Form 6-K filed on December 3, 2018.
The Company intends to include the disclosure required by the Staff in its annual report on Form 20-F for the fiscal year ended March 31, 2019 to be submitted in July 2019 (the “2019 Annual Report”). Set forth below are the responses of the Company to the comments in the Comment Letter. For ease of reference, each comment contained in the Comment Letter is printed below in bold and is followed by the Company’s response.
Hogan Lovells is an affiliated business of Hogan Lovells International LLP, a limited liability partnership registered in England and Wales.
Hogan Lovells is part of an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses, with offices in: Alicante Amsterdam Baltimore Beijing Birmingham Boston Brussels Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Johannesburg London Los Angeles Luxembourg Madrid Mexico City Miami Milan Minneapolis Monterrey Moscow Munich New York Northern Virginia Paris Perth Philadelphia Rome San Francisco São Paulo Shanghai Silicon Valley Singapore Sydney Tokyo Warsaw Washington, D.C. Associated Offices: Budapest Jakarta Riyadh Shanghai FTZ Ulaanbaatar Zagreb. Business Service Centers: Johannesburg Louisville.
The word “partner” is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing. Certain individuals, who are designated as partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members. For more information about Hogan Lovells, the partners and their qualifications, see www.hoganlovells.com.
Hogan Lovells is a member of the Sino Global Legal Alliance with offices in: Beijing Changsha Chengdu Chongqing Dalian Guangzhou Hangzhou Hong Kong Jinan Kunming Lanzhou Shanghai Shenyang Shenzhen Tianjin Wuhan Xiamen Xian and of the Pacific Rim Advisory Council with member offices in: Argentina Australia Brazil Canada Chile China (Mainland) Colombia France Hong Kong India Indonesia Japan Korea Malaysia Mexico Netherlands New Zealand Peru Philippines Singapore Taiwan Thailand USA Venezuela.
M D R Parsons
B May
N W O Tang
E I Low
J P Kwan
S K S Li
L H S Leung
Counsel
A D E Cobden
K K S Wong
K C W Lee
E Seto
J S F Yim
Foreign Legal Consultants
M A Zaldivar
(New York and Florida, USA)
S Peepels
(Pennsylvania, USA)
S Tang
(New York, USA)
Item 4. Information on the Company
Our Technology and Risk Management System, page 58
1. We note your disclosure of your credit grading scores and system on pages 59 and 60, which appears to show that approximately 76% of your loan transaction volume is with borrowers with a credit grade of A or B. Subsequently, we note from your Form 6-K filed on February 28, 2019 that your net revenue for the three months ended December 31, 2018 decreased by 95.6% compared to the three months ended December 31, 2017 due to implementation of stricter credit scoring standards, which downgraded the number of borrowers. In future filings, please revise your disclosures to address the following:
· Provide a detailed discussion of all the reasons leading you to implement stricter credit scoring standards, including the exact date that the new standards were implemented, and why it was necessary, considering that you previously disclosed 76% of your loan transaction volume was with borrowers having a credit grade of A or B. For example, ensure that your disclosure discusses whether the need to enforce stricter credit scoring standards was as a result of a change in regulatory requirements, communications of non-compliance by a governing body, difficulties with assessing credit grades under your previous system, whether there was a notable increase in the delinquency and charge-off rates of your existing borrowers, among other possible factors.
RESPONSE:
In response to the Staff’s comment, since the second quarter of fiscal year 2019, the consumer credit and marketplace lending industry of the PRC has experienced significant turmoil due to tightened industry regulation. Some consumer lending marketplaces were suspended or shut down due to their failure to meet the heightened requirements imposed by PRC regulatory authorities, including requirements on the qualification, operation model, information disclosure and custody accounts practice. Due to this development, investor sentiment has been low across the market, resulting in a significant reduction in the amount of investment on the Company’s platform.
In light of this development, the Company did not implement any change to its existing credit scoring standards, but rather began to apply stricter internal control in the later half of fiscal year 2019. Such internal control includes conducting credit background investigations with heightened diligence and cooperating with third-party credit reporting agencies to further develop the Company’s credit check system. In the event a borrower fails to meet the requirements of the Company’s background check, the Company denies his application for loans during the application process. For borrowers who meet the Company’s heightened due diligence standards, due to limited investment available, the Company can only successfully facilitate loans where both the Company chooses the borrowers with better credit profiles, and the selected borrowers are willing to choose the Company to extend loans considering factors such as service fees, interest rates and approval efficiency of different platforms in an uncertain market. These reasons above resulted in the decline in the number of borrowers.
Since the Company derives its revenue mainly from charging service fees from borrowers after successful facilitation of loans, the decline in both the amount of investment on the Company’s platform and the number of borrowers who meet the Company’s heightened due diligence standards resulted in the decrease in revenue for the three months ended December 31, 2018.
2
The Company respectfully acknowledges the Staff’s comment and will provide a sufficient and thorough narrative based on the above discussion to supplement the disclosure on the reasons for the quarterly changes in the 2019 Annual Report.
· Provide detailed disclosure of the processes you are implementing, including systems used, milestone dates and data migration of information, for your new credit scoring standards and specifically how the new processes are an enhancement to your previous processes. As part of your disclosure, explain why your previous credit scoring system was insufficient.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
· Provide a reconciliation for how the previous credit grades will fit into your new credit scoring standards. For example, disclose how those borrowers that previously had a credit grade of A or B under your previous system would be classified under your new credit scoring standards.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
· Given the significant decline in revenues due to stricter credit scoring standards, disclose whether the borrowers under your previous credit scoring system would be permitted as borrowers under your new credit scoring standards at all. In this regard, quantify the amount of revenue associated with borrowers in previous periods that would not meet your stricter credit scoring criteria currently in place.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
The Company further advises the Staff that the decline in revenues is mainly attributable to the industry development as described in the response to the first bullet point, which resulted in the lower number of loans the Company successfully facilitates. Specifically, the reduction in the number of loans is caused by (1) the decline in the amount of investments from investors due to the industry turmoil caused by tightened regulation; and (2) the decline in the number of borrowers due to the application of the Company’s stricter internal control. Since the Company derives its revenue mainly from charging service fees from borrowers after successful facilitation of loans, revenue for the three months ended December 31, 2018 decreased naturally.
· Disclose the number of borrowers that you have denied from participating on your platform since implementing the new credit scoring standards.
RESPONSE:
The Company respectfully advises the Staff that it did not implement a new credit scoring system, but only a stricter internal control process in light of the industry development as described in the response to the first bullet point.
3
Item 5. Operating and Financial Review and Prospects
B. Liquidity and Capital Resources
M3+ Net Charge-Off Rates, page 110
2. In your future filings, please revise your disclosures to discuss how you use the M3+ Net Charge-Off Rates and its use for investors, including a discussion of the reasons driving the change in the charge-off rates from period to period.
RESPONSE:
The Company respectfully acknowledges the Staff’s comment and will include in the 2019 Annual Report explanations on the Company’s use of the M3+ Net Charge-Off Rates and its use for investors, together with a discussion of the reasons driving the change in the charge-off rates from period to period.
Notes to the Consolidated Financial Statements
Note 4 - Loan Receivable, page F-24
3. We note that you have begun initiating loans through your consolidated VIE, Wusu, beginning on January 1, 2018 and had a loans receivable balance of $28.7 million as of March 31, 2018, which has subsequently increased through December 31, 2018. We also note that you did not have an allowance for loan losses recognized on these loans as of March 31, 2018. In your future filings, please revise your disclosures to address the following:
· Disclose all information required by ASC 310-10-50 and other material information about your loans, including an aging analysis of your loan portfolio, specific terms of the loans, whether any loans are to related parties, any modifications of terms, accounting policy for those modifications, your troubled debt restructuring (“TDR”) policy, performance and non-performance characteristics of the loan portfolio, your policy for placing loans on non-accrual status, and credit quality indicators.
· Expand the disclosures in your Critical Accounting Policies, Judgments and Estimates to provide specific details of all the critical factors you considered in your determination of the allowance for loan losses, including a specific discussion of each of the various credit quality indicators noted in the bullet point above, as well as your consideration of historical delinquency, charge-off and loss rates.
· Disclose a rollforward of your allowance for loan losses.
· Provide a similar level of disclosure on your receivables balance and determination of the allowance for doubtful accounts, which we note had a balance of $20.3 million as of September 30, 2018.
RESPONSE:
The Company respectfully acknowledges the Staff’s comment and will disclose in the 2019 Annual Report all information required by ASC 310-10-50 and other material information about the loans, including an aging analysis of the loan portfolio, material terms of the loans, whether any loans are to related parties, any modifications of material terms, accounting policy for any modification if applicable, its TDR policy, performance and non-performance characteristics of the loan portfolio, its policy for placing loans on non-accrual status, and credit quality indicators.
Furthermore, the Company respectfully acknowledges the Staff’s comment and will expand the disclosures in Critical Accounting Policies, Judgments and Estimates in the 2019 Annual Report to provide specific details of all the critical factors it considered in its determination of the allowance for loan losses, including a specific discussion of each of the various credit quality indicators noted in the bullet point above, as well as its consideration of historical delinquency, charge-off and loss rates. The Company will also disclose a rollforward of its allowance for loan losses.
4
The Company proposed to disclose the critical accounting policy for loans receivable as follows:
“Loans receivable, net
During the fiscal year ended March 31, 2018, the Company started to engage in the micro-lending business through Wusu Company to borrowers in China. Loans receivable represent loan originated by the Company, which is due from the borrowers. As of March 31, 2019 and 2018, the loans are typical with loan terms ranging from 12 months to 36 months with annual interest charge from 6% to 8%, and 12 months with annual interest charge of 8%, respectively. The Company has the intent and the ability to hold such loans for the foreseeable future or until maturity or payoff.
Loans receivable are recorded at unpaid principal balances, net of allowance for loan losses that reflects the Company’s best estimate of the amounts that will not be collected.
Allowance for loan principal and interest receivables
The Company considers the loans to be homogenous as they are all unsecured loans and the credit profiles of the borrowers are also similar. Therefore, the Company applies a consistent credit risk management framework to the entire portfolio of loans in accordance with ASC 450-20, Loss Contingencies.
The allowance for the loan portfolio is determined using a roll rate-based model. The roll rate-based model stratifies the loans principal, interest an