Hopes rise for China-to-US IPOs

IFR Asia 1191 - 12 Jun 2021 - 18 Jun 2021
5 min read
Fiona Lau

The US capital markets are firmly back on the map for China's technology sector after a brief lull, with ride-hailing giant Didi Chuxing setting course for a jumbo US$10bn IPO as early as next month.

Coming after recruitment portal Kanzhun priced a US$912m Nasdaq IPO at the top of the range, Didi's move points to renewed confidence in Chinese technology listings after a general sell-off in the sector and disappointing debuts have forced other IPO candidates to rethink their plans.

Didi started pre-marketing on Friday for what is likely to be one of the year’s largest IPOs globally, outlining an all-primary offering on either Nasdaq or NYSE.

The float could raise about US$10bn at a US$80bn–$100bn valuation, people with knowledge of the matter said on Friday, up from a US$62bn valuation in a US$4.8bn private round in 2018.

At US$10bn, Didi's listing would be the biggest Chinese IPO in the US since Alibaba Group Holding raised US$25bn in 2014.

Other Chinese issuers, meanwhile, have kept their IPOs on hold in search of a better window. Shares in Waterdrop, the last China-to-US listing, have plummeted 30% from the IPO price since the insurance tech company went public in May.

Bike-sharing platform Hello, cloud computing firm Qiniu, online truck logistics services provider ForU Worldwide and podcast and radio start-up Ximalaya have all finished pre-marketing and are now waiting for a market window to launch.

“The market has never been bad for good companies and Didi is surely one of them,” said a person familiar with the situation.

Didi posted revenues of Rmb141.7bn (US$22.2bn) in 2020, down 8.5% from 2019 due to the impact of the Covid-19 pandemic. Its loss was Rmb10.6bn, compared with Rmb9.7bn a year earlier.

With businesses reopening in China, Didi’s revenue reached Rmb42.2bn in the first quarter, more than doubling from Rmb20.5bn a year earlier. It also turned profitable in the first quarter with a Rmb5.5bn profit, compared with a Rmb4bn loss a year earlier.

Didi, which operates in nearly 4,000 cities across 15 countries, provided services to over 493 million annual active users and powered 41 million average daily transactions for the 12 months ended March 31.

SoftBank, through its Vision Equity fund, is the company’s largest shareholder with a 21.5% stake, followed by Uber Technologies and Tencent at 12.8% and 6.8%. DiDi chairman and CEO Will Wei Cheng owns a 7% stake.

Goldman Sachs, Morgan Stanley, JP Morgan are leading the transaction with China Renaissance.

Top of the range

Tencent-backed Kanzhun priced an offer of 48m primary American depositary shares at the top of a US$17–$19 indicative range per share last week, sending a positive signal to a long list of Chinese issuers waiting in the wings.

Online grocery delivery start-up Missfresh, grocery app Dingdong and boutique hotel operator Atour started pre-marketing their respective US IPOs of US$500m, US$500m and US$300m last week.

“Many of them are hoping a good deal (Kanzhun) could turn around the sentiment towards Chinese listings,” said one ECM banker.

SoftBank-backed Zhangmen saw its shares pop 48% on debut on Tuesday, but that was after the online education company lowered its IPO size from US$100m to just US$42m and had its IPO heavily supported by insider orders.

All eyes were on the debut of Kanzhun on Friday, after it wrapped up the biggest IPO from a Chinese company in the US since software firm Tuya’s US$947m float in March.

Shifara Samsudeen, an analyst at LightStream Research, expects Kanzhun’s shares to rise to US$27.90–$30.50 on debut, 47%–61% above the IPO price.

Kanzhun started bookbuilding on June 6 and the books were quickly covered after launch.

Similar to many China-to-US IPOs, the deal had support from existing shareholders with Sequoia Capital China and Tiger Global Investments indicating interest for a combined US$100m.

It also pick up big indications of interest from new investors, including UBS Asset Management (US$100m), GIC (US$100m) and Mubadala (US$75m).

Investors like Kanzhun’s unique business model and fast growth. Founded in 2014, Kanzhun's core product, Boss Zhipin, is a mobile app that allows direct chats between job seekers and employers. The app averaged 24.9 million monthly active users for the first three months of 2021, up 72% year on year.

Kanzhun posted revenue of Rmb782m ($119.4m) for Q1 2021, up 180% over the same period of 2020. Its net loss was Rmb176.2m in Q1 2021, compared to a loss of Rmb278.8m a year earlier.

“We believe Kanzhun’s offer is attractive given the company offers strong revenue growth even during the pandemic… We expect the company to turn profitable in the near-term,” said Samsudeen, who publishes on Smartkarma.

Tencent Holdings owned 12.2% of Kanzhun before the IPO.

Goldman Sachs, Morgan Stanley, UBS and China Renaissance led the transaction.