Shares of Chinese liquor company ZJLD Group Inc. tumbled on their debut in Hong Kong on Thursday as the lack of cornerstone investors for the offering left it vulnerable to weak market sentiment.
(Bloomberg) — Shares of Chinese liquor company ZJLD Group Inc. tumbled on their debut in Hong Kong on Thursday as the lack of cornerstone investors for the offering left it vulnerable to weak market sentiment.
The KKR & Co.-backed company’s stock slumped nearly 18% to close at HK$8.88. That marked the worst debut performance among Hong Kong listings bigger than $500 million since September, when Zhejiang Leapmotor Technologies Ltd. tumbled 34% on its first trading day, according to data compiled by Bloomberg.
The poor debut comes as sentiment toward stocks in China and Hong Kong has taken a turn for the worse amid geopolitical tensions and as investors are seeking more proof about China’s consumer recovery. It is a setback for Hong Kong, which has been seeking to reclaim its status as a global fundraising center after an extended market slump and Covid dented appetite.
“The IPO has no cornerstone investors and subscription figures show that demand was tepid,” said Kakei Lam, fund investment officer at Metaverse Securities in Hong Kong. “ZJLD has little advantage in the liquor industry in terms of its brand and products. As a high-end liquor firm, its profit margin lags industry peers.”
ZJLD sold shares at HK$10.82 — near the bottom of a marketed range — to raise HK$5.3 billion ($675 million) in what was Hong Kong’s biggest initial public offering this year. Before that, the Asian financial hub hadn’t hosted a listing larger than $150 million in 2023, with a total of just $883 million raised in 18 deals, data compiled by Bloomberg show.
READ: Baijiu Godfather Is $3 Billion Richer With Top HK Listing of ‘23
Beijing-based ZJLD is the first listing outside of mainland China for a distiller of baijiu, the most-consumed form of alcohol in the nation. While China’s high frequency indicators show the economy continued to expand in April, the strength of consumer spending remains uncertain given unemployment rates, especially for young people, remain high and households continue to boost savings rather than splurge.
“ZJLD’s profit has started to show trends of slowing. There’s still demand for high-end consumer stocks but people are becoming more selective,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd. “The IPO market weakness has weighed on investors’ confidence.”
Goldman Sachs Group Inc. and China Securities International are the sponsors of the ZJLD listing, while China International Capital Corp. and KKR had junior roles arranging the deal.
The weak debut by Hong Kong’s top offering of the year also raises some doubts over what has been seen as a nascent recovery in the global IPO market in recent weeks, after equities rebounded and volatility dwindled across asset classes.
Steep Discount
Some analysts are optimistic about ZJLD’s prospects.
“Sales of ZJLD could climb ahead of China’s overall baijiu industry on the back of sustainable strong demand of premium and super-premium baijiu,” Bloomberg Intelligence analyst Ada Li wrote in a note before the listing. Given the IPO price range, the firm trades at steep discount to industry leaders including Kweichow Moutai Co. — China’s largest listed company in the space, Luzhou Laojiao Co. and Wuliangye Yibin Co. based on forward enterprise-value-to-sales ratios, she wrote.
ZJLD traces its roots to a state-backed project in Guizhou province in 1975, according to its prospectus. The Group was established in its current form in 2003 by Chairman Wu Xiangdong, who will own about 69% of the company following the listing, while KKR will control a stake of about 14%.
The company reported net income of 1 billion yuan ($144 million) in 2022, largely unchanged from the year before, while revenue jumped 15% to 5.9 billion yuan. The IPO proceeds will be used to fund construction of production facilities, build brands, expand sales channels, automate operations and replenish working capital.
–With assistance from David Morris and Ishika Mookerjee.
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