China’s ZTO Express falls in market debut: Reuters

Chinese package delivery company ZTO Express‘ shares opened 5.6 percent below the IPO price in their U.S. market debut on Thursday.

Shanghai-based ZTO’s offering is the biggest U.S. initial public offering of the year and the largest by a Chinese company since the $25 billion IPO of e-commerce giant Alibaba Group Holding Ltd in 2014.

ZTO shares, which opened at $18.40, fell as much as 10 percent in morning trading.

ZTO’s IPO of 72.1 million shares was priced at $19.50 per share, above the previously expected range of $16.50-$18.50 per share, to raise $1.41 billion.

The deal adds a much-needed boost to the volume of U.S. IPOs from Chinese firms, which plunged to just $309 million from five deals in 2015, after a record $29 billion in the previous year because of Alibaba’s listing, according to Thomson Reuters data.

Chinese companies, particularly not-yet-profitable technology firms, had been flocking to U.S. markets for years, counting on a large pool of fund managers, which are more familiar with startup investing, to raise funds for expansion.

Founded in 2002, ZTO is a major player in China’s quickly expanding e-commerce market. It delivers parcels for Alibaba and JD.com Inc, among others.

ZTO’s sales jumped to RMB 6.1 billion ($915.8 million) in 2015, up from RMB 3.9 billion in 2014. Its net income was RMB 1.3 billion ($200.4 million).
ZTO will use some of the proceeds from its offering to buy more trucks and expand capacity through the purchase of land, facilities and equipment, according to its prospectus.

INTERNATIONAL ACQUISITIONS
As concerns grow about a weakening Chinese currency, the New York IPO gives the company more stable dollar-denominated shares it can use for international acquisitions, according to people close to the company.

ZTO will have a dual-class share structure that will give its founder Lai Meisong 80 percent voting power in the company, even though he will only hold 28 percent of the stock after the IPO.

Most of Lai’s shares are Class B ordinary shares carrying 10 votes, while Class A shares, including the new U.S. shares, have one vote. China’s markets do not allow shares with different voting power.

China’s express delivery firms handled 20.7 billion parcels in 2015, shifting 1.5 times the volume moved in the United States, according to consulting firm iResearch data cited in the ZTO prospectus.

The market will grow an average 23.7 percent a year through 2020 and reach 60 billion parcels, iResearch forecasts.

Domestic rivals STO Express and YTO Express have unveiled plans to go public with reverse takeovers worth $2.5 billion and $2.6 billion. The country’s biggest player, SF Express, and rival Yunda Express, are working on similar deals worth $6.4 billion and $2.7 billion respectively.

Morgan Stanley, Goldman Sachs Group Inc, China Renaissance, Citigroup Inc, Credit Suisse AG and JPMorgan Chase & Co are among underwriters for the listing.

 

 

Photo: Workers listen to their line manager as he prepares them for the upcoming Singles Day shopping festival, at a sorting centre of Zhongtong (ZTO) Express, Chaoyang District, Beijing, November 8, 2015. Reuters/Jason Lee