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More Chinese companies seek Hong Kong dual listings as US pressure rises

Written by Nikkei Asia Published on   3 mins read

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ZTO Express in talks with banks while Yum China seeks USD 2 billion.

Yum China, the operator of Pizza Hut and KFC on the mainland, has confidentially filed for a USD 2 billion listing in Hong Kong while Alibaba-backed delivery company ZTO Express is also considering selling shares in the city, joining a line of US-listed Chinese companies hoping to go public closer to home.

People familiar with the plans said that the decisions were made by the companies in view of mounting tensions between Beijing and Washington.

“Chinese companies are warming up to the idea of holding a second listing,” said one of the people close to the plans. “While the companies can’t be forced off US exchanges for at least three years, they are considering the move given strong reception in Hong Kong.”

If successful, the companies will join Alibaba Group Holding, game developer NetEase, and online retailer JD.com on the Hong Kong Stock Exchange. Alibaba, NetEase, and JD.com have raised a cumulative USD 20 billion through secondary listings in Hong Kong since November last year.

Chinese companies are tapping the Hong Kong market after the US Senate last month approved a bill that could force mainland companies to delist if they fail to comply with US regulations for three consecutive years.

China digest

Foreign companies are now subject to a lower standard of scrutiny. The bill is awaiting approval by the US House of Representatives.

The secondary offerings of JD.com and NetEase this month were multiple times subscribed. Their retail tranches were oversubscribed by 179 times and 360 times, respectively. Those shares have held above their issue prices since their successful listing.

New York-listed Yum China, which has picked China International Capital Corp. and Goldman Sachs as advisers for its Hong Kong offering, will seek approval from the stock exchange in the “coming weeks,” one person familiar with the deal said.

Yum China was spun off from US parent Yum Brands in 2016 and is China’s largest restaurant chain operating over 9,200 outlets in over 1,400 cities and towns.

Chinese investment firm Primavera Capital Group is one of its largest shareholders, with a 4.4% stake as of May. Fred Hu, group founder, is now Yum China’s chairman and William Wang, another Primavera partner, is also a board member.

ZTO Express is in talks with banks about a potential listing, which could happen as early as the end of the year, a person familiar with the discussions said.

A potential offering by the New York-listed ZTO could raise USD 1 billion to USD 2 billion, another source said. In 2016, the company raised USD 1.4 billion in an initial public offering led by Morgan Stanley and Goldman Sachs.

ZTO did not reply to emails seeking comment and company officials could not be reached by phone. A spokesperson for Yum China said the company would not comment on market speculation.

ZTO is valued at USD 29 billion and Yum China’s market capitalization stood at USD 19 billion, based on their closing prices on Monday in New York.

Search giant Baidu is also considering a listing in Hong Kong, people with knowledge of the matter have said while financial magazine IFR reported earlier this month that hotel operator Huazhu Group is working with financial advisers to explore a share sale in the territory. Both have primary listings in New York.

The Hong Kong Stock Exchange was seeing “tremendous interest” from companies hoping for a secondary listing, its CEO Charles Li said at a business forum on Monday.

Hong Kong will continue to list Chinese companies that trade overseas in the second half of the year, Jacky Lai, a partner at consultancy firm EY said at a conference on Tuesday.

About 42 Chinese companies trading on US stock exchanges qualify for listings in Hong Kong. If they issue 5% of their outstanding shares in Hong Kong, it would amount to total capital raising of USD 27 billion, UBS analysts wrote in a note.

Some 354 companies of Chinese origin have listed in the US since 1993, raising a total of USD 88.5 billion, according to Citigroup. Over the years, 107 of them have been delisted and the current market value of those remaining stands at USD 1.5 trillion.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.

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