Bottom line: ZhongAn’s and Qudian’s IPOs are likely to price and debut strongly over the next few weeks on excitement about China fintech, while Best’s will debut to indifference following the slashing of its size.
Three companies likely to list in New York and Hong Kong by the end of this month are setting the tone for what’s set to be a busy fall for similar new offshore offerings from Chinese companies. Two of those are coming from the hot fintech sector, where online microlender Qudian and online insurance seller ZhongAn appear to be drawing strong interest in IPOs that could each raise north of $1 billion. But logistics company Best Inc is moving firmly in the other direction, with the announcement that it has just slashed the size of its fund-raising plan by nearly half.
Neither of these themes is completely surprising, since fintech has become a hugely lucrative area in China due to the relatively greenfield nature of the sector. Until only very recently, nearly all financial services in China were dominated by state-run companies, which aren’t exactly known for their innovation and embrace of technology. That’s also partly true for logistics, though in that case the industry has quickly become a bit of a bloodbath plagued with cutthroat competition among around 10 major players.
Let’s begin with fintech, which will be one of the major themes this fall as another 4 or 5 companies line up behind Qudian and ZhongAn, hoping to ride on their coattails if that pair of IPOs are successful. ZhongAn, which has ties to Internet titans Alibaba (NYSE: BABA) and Tencent (HKEx: 700), is the more advanced and larger of the pair, aiming to raise up to $1.5 billion. Qudian is about half that size, though one of my sources tells me it could also end up raising over $1 billion.
ZhongAn made its first public filings a week ago, and it appears the stock could debut in Hong Kong as soon as next week. My sources were telling me the company, which transacts all of its business online, was getting a relatively strong reception. That view appears to be playing out in the latest report, which says the institutional portion of the deal has been oversubscribed by several times. (English article) The same report cites unnamed sources saying around 95 percent of the deal will probably go to such big buyers, but adds that demand from mom-and-pop retail buyers was also strong.
Next there’s Qudian, which just made its first public filing for an IPO to raise up to $750 million this week. (English article) As I’ve said above, one of my sources close to this particular deal tells me demand for the offering has been strong, and the final fund-raising amount is quite likely to exceed $1 billion.
A quick look at Qudian’s financials show why this particular offer looks quite strong. The company’s revenue jumped five-fold to 1.8 billion yuan ($273 million) in the first six months of this year, while its profit soared by an even larger 8-fold to 974 million yuan. Some quick eyeballing shows that not only are the numbers growing very quickly, but that more than half of the company’s revenue is dropping to the bottom line as profits — a rate that looks quite impressive to a layman like myself.
While those two offers look quite hot, the opposite is true for Best, which is backed by Alibaba and popped into the headlines three weeks ago with the potential to become the first $1 billion IPO by a Chinese company in New York this year. (previous post) But apparently demand for that offering hasn’t been too strong, and the company has just slashed its previous target to about half the previous amount to $569 million, according to its latest filing. (company posting)
Another report on the issue is saying that even after the major reduction, which also includes a lowering of its price range, Best is still getting lukewarm demand for its shares. That’s forcing Alibaba, already a major shareholder, to step in and offer to buy up to $150 million of the shares. Anyone with a calculator can see that means that Alibaba would be buying nearly a third of the shares being offered, which doesn’t exactly send the biggest signal of confidence since it’s already a major shareholder.
I previously said this offering could meet with lukewarm demand, both based on my own experience here in China and also based on the stock performance of ZTO Express (NYSE: ZTO), the only other major Chinese logistics firm listed in the US. Since that listing nearly a year ago, ZTO’s shares have gone nowhere, and now trade more than 20 percent below their IPO price. All that said, we can probably expect Best’s shares to price in the middle of their lowered range at best, and to get a tepid reception when they debut either this week or next.