A parade of Chinese bubble tea makers are lining up for first-time share sales in Hong Kong and the US, where they are likely to get less regulatory scrutiny than at home.
(Bloomberg) — A parade of Chinese bubble tea makers are lining up for first-time share sales in Hong Kong and the US, where they are likely to get less regulatory scrutiny than at home.
At least six companies slinging the popular beverage are separately weighing overseas initial public offerings, according to people familiar with the matter. They range from Mixue Bingcheng Co., China’s biggest bubble tea chain, to Zhejiang-based XSQ Tea on the smaller end with 1,600 stores.
Chinese regulators earlier this year issued guidelines discouraging certain types of companies from listing in the domestic A share market, and in the cases of liquor companies and tutoring firms, banned listings outright, Bloomberg News reported. Using so-called window guidance, regulators discreetly advised that companies that rely on explosive franchise business models also cannot list locally, according to a person briefed on the matter.
Food and beverage chains were reportedly among companies banned from listing in China’s main exchanges, according to Chanson & Co.’s Shen Meng, “especially projects that are burning money in order to surge in scale.”
“Unfortunately, almost all of bubble tea makers adopt this business model,” the director at the Beijing-based boutique investment bank added. “Almost all of bubble tea makers are in the red, so it becomes hard for them to meet standards of an IPO in the A share market.”
Instead of pursuing IPOs on the mainland, bankers have been rushing to pitch bubble tea companies to list overseas. The bull case is that a wave of fresh Chinese consumer spending is on its way now that Covid restrictions have finally lifted, though evidence of a rebound has so far been lacking.
Nayuki Holdings Ltd., a Chinese bubble tea chain that went public in Hong Kong two years ago, has seen its stock decline about 70% from its IPO price.
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Mixue leads the pack of IPO aspirants with 25,000 locations in China and 3,000 overseas, according to its website. The company, which also sells ice cream sundaes, considered a Hong Kong listing as early as 2021, Bloomberg News reported. It filed last year for a $918 million Shenzhen IPO which has since been put on hold, according to people familiar with the matter.
Numerous bankers have pitched Mixue recently for a Hong Kong listing now that the door to Shenzhen seemed to have shut, but the company has yet to make a final decision, said the people, who asked not to be identified as the information is private. GF Securities Co., the sponsor for its A share plan, is likely to get a role on the listing if Mixue decides to give Hong Kong a go, the people said.
Aside from Mixue, the other companies are likely to raise less than $500 million each, the people said. Global IPO volume is so far well short of the glory days of 2021. In Hong Kong, the biggest listing this year to date was Chinese white liquor maker ZJLD Group Inc., which raised $676 million in April.
Fruit tea chain ChaBaiDao has tapped China International Capital Corp. to work on its revived Hong Kong listing that could happen as early as next year, the people said. The Chengdu-based beverage retailer has opened more than 6,000 stores in over 250 Chinese cities, and raked in almost 36 billion yuan ($5 billion) in annual revenue, according to its website.
GoodMe, known as Gu Ming, could raise about $300 million in a Hong Kong offering as soon as next year, the people said. XSQ Tea, which sells fried chicken as well as fruit tea, has also been meeting with potential advisers recently to draw up plans for a Hong Kong listing, the people said.
Two of the bubble tea brands are exploring possible listings in the US, though fewer Chinese companies have headed in that direction since the crackdown following Didi Global Inc.’s ill-fated listing in 2021.
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One company weighing a US IPO and working with potential advisers is Sichuan Chagee Enterprise Management Co., the people said. Doing business under the name Chagee, which refers to a 2,000 year old love story about a Chinese warlord, the firm now has more than 1,860 stores, including more than 70 in Malaysia, Thailand and Singapore, its website shows.
Representatives for CICC, Citigroup, Citic Securities and GoodMe declined to comment, while Auntea Jenny, Bank of America, ChaBaiDao, Chagee, China Securities Regulatory Commission, GF Securities, Goldman Sachs, Haitong International, Mixue, UBS and XSQ Tea didn’t immediately respond to requests for comment.
Even overseas, bubble tea makers may face hurdles convincing investors that their growth story is genuine, according to Natixis SA.
“Chinese food and beverage chains usually rely on quick expansion to achieve a large market share and pitch the story to investors as the exit strategy,” said Gary Ng, senior economist for Natixis in Hong Kong. “It also means that the corporate health of these firms may not be very sound with leverage, and the chains are usually highly replaceable if there are new, good competitors.”
*Bank names according to people familiar with the matter. **Store counts are approximate.
–With assistance from Filipe Pacheco, Daniela Wei, Zhang Dingmin and April Ma.
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