In recent months, at least a dozen Chinese companies with collective private valuations of roughly $500 billion have been in talks with bankers and potential investors about initial public offerings in the second half of this year or in early 2019, according to people familiar with the discussions.
If all those deals go ahead, at least $50 billion worth of new shares could hit stock markets, shaping up as a test of investor appetite for China’s expanding internet-consumer economy. Companies typically sell 10% to 20% of their shares when they go public.
The rush to list reflects a shift from last year, when many of the world’s most valuable technology unicorns—private companies with valuations exceeding $1 billion—had little need or desire to tap the capital markets because they were flush with cash and had abundant private fundraising options.
Several factors are at play, including a loosening of listing rules in China and Hong Kong, intensifying competition in China’s mobile and internet industries, rising stock valuations and shareholder pressure.
“It’s a herd mentality,” said Rocky Lee, a partner at law firm King & Wood Mallesons who advises Chinese tech founders. “If a competitor of yours decides to list, you have to consider listing.”
Chinese ride-hailing giant Didi Chuxing Technology Co. in recent weeks has sped up talks about the possibility of going public, The Wall Street Journal reported last week, after a large Chinese online-services platform earlier this year started offering competing ride-hailing services.
That platform, Meituan-Dianping, has a large online food review and delivery services business and is also planning an IPO—targeting a $60 billion market valuation—according to people familiar with the matter. Didi is aiming for at least $70 billion to $80 billion, the Journal previously reported.
Gloria Liu, a partner at law firm DLA Piper in Hong Kong, said several Chinese private companies have become dominant players in their industries after merging with or acquiring other tech firms. Going public, she added, “is the natural next step.”
Other Chinese tech unicorns working on IPO plans include smartphone maker Xiaomi Corp., music-streaming company Tencent Music Entertainment Group and online lender Lufax, which is backed by Chinese financial giant Ping An Insurance . Jack Ma’s financial technology giant and Alibaba affiliate Ant Financial Services Group—now in the middle of a $9 billion fundraising round—is widely expected to follow suit. Some of the larger companies are already profitable.
Several firms are seeking a listing in Hong Kong, where regulatory changes are also encouraging more initial share sales.
A recent move by that exchange to allow companies with two classes of voting stock to list is “a big game-changer,” said Richard Ji, chief investment officer at Hong-Kong based All-Stars Investment Ltd., allowing tech entrepreneurs to keep control of their companies and list them in a market close to home.
And China recently said it would allow overseas-incorporated companies to list on the mainland by issuing depositary receipts, or contracts that give domestic investors interests in their shares.
Some younger and smaller companies are also working on IPO plans. News app Qutoutiao is planning an offering in the U.S. later this year, according to people familiar with the matter. It could value the startup at $4 billion, one of the people said. NIO, an electric-car maker based in Shanghai, is discussing selling a chunk of its IPO shares to Japan’s SoftBank Group Corp. when the startup goes public in New York in the second half of the year, the Journal has reported.
U.S. investment banks are trying to get in on the potential IPO bonanza. Some U.S.-based bankers have spent more time in China in recent months, courting companies and pitching them on going public, according to people familiar with their movements. Some banks in Hong Kong have been bulking up their teams of tech bankers.
Kai Fang, managing director at investment bank China Renaissance, said bankers on his team may work as many as 100 hours some weeks to handle the increased workload created by companies considering IPOs and investors looking to buy stakes.
As Chinese internet companies build scale and expand into more businesses, they need bigger war chests to fund their growth and customer-acquisition efforts, and to fend off rivals at home and abroad. After undergoing several large rounds of private fundraising, their funding options are more limited if they don’t go public.
Early investors are simultaneously pushing companies to list at a time when public market valuations are high. Despite recent declines in global tech stocks, shares of Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are still up more than 50% from a year ago.
Investors in recent months have been bidding up the values of Chinese tech companies in private trades. Meituan, which late last year was valued at $30 billion when it raised $4 billion from Booking Holdings Inc.—formerly known as Priceline Group —Tencent and others, is now being valued at $37.2 billion following some private trades in its shares, according to a document reviewed by the Wall Street Journal.
Whether global markets can absorb a sudden influx of Chinese tech listings remains to be seen. Bankers and investors say they detect pent-up demand. Recent tech IPOs have featured more institutional investors, reflecting a more mature and developed market, said Li Hang, head of greater China’s equity capital markets at brokerage firm CLSA.
Ping An Healthcare and Technology Ltd., which runs an online medical-services app, recently priced its $1.1 billion IPO at the top of its offered price range and drew large investors including BlackRock Inc. and the Canada Pension Plan Investment Board, according to a securities filing. - WSJ
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