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A Chinese startup’s $1 billion initial public offering that was set to be Hong Kong’s biggest listing this year has been halved, reflecting investors’ aversion to Chinese equity offerings after years of underperformance.
J&T Express, an express delivery company operating in Southeast Asia and China, has been forced to lower its fundraising target due to lackluster investor response, according to three people familiar with the matter.
The group’s clients include Chinese e-commerce giant Pinduoduo and ByteDance’s TikTok, and its smaller listing comes as global investors become increasingly pessimistic about China’s growth prospects and tensions with the United States.
“Right now in China (initial public offerings) you need a 20% to 30% discount to get a deal done,” one banker said, adding that J&T has “decided to keep the valuation the same but sell less shares” as poor market conditions in Hong Kong dampened investor interest.
According to people familiar with the matter, J&T lowered its valuation from US$20 billion to US$13 billion in May and is expected to maintain this level after listing. Bank of America, Morgan Stanley and CICC are joint sponsors of the deal. J&T declined to comment.
According to Dealogic data, J&T’s IPO size is US$1 billion, which will be the largest IPO in Hong Kong since the US$1.3 billion listing of AVIC Lithium Battery in October 2022. The deal, valued at US$500 million, will be the largest since liquor group ZJLD went public in April.
Companies have raised just $3.5 billion from Hong Kong listings this year, down nearly 70% from a year ago, with the annual total expected to hit its lowest level in two decades as hopes of a steady stream of Chinese IPOs have been dashed. . The economy is sluggish and geopolitical risks are rising.
Hong Kong’s benchmark Hang Seng Index has fallen more than 8% so far this year.
J&T has also faced investor questions about the impact of new Indonesian regulations that ban e-commerce transactions on social media platforms, one of its fastest-growing customers.
The ban forced TikTok owner ByteDance to shut down its Indonesian version of TikTok Shop, an in-app shopping platform, in October. Potential IPO investors say J&T has identified TikTok Shop as a major source of delivery demand.
TikTok’s operations in Southeast Asia, J&T’s only profitable market, are coming under increasing scrutiny in other countries, including Vietnam and Malaysia. People familiar with the company said Indonesia accounted for about half of the $330 million in adjusted earnings in the region last year. In comparison, the company still lost $722 million in the period, despite higher revenue from its China operations.
A potential IPO investor said that although J&T’s business from TikTok Shop has lower profit margins, “it allows them to tell investors around the IPO about their dominance in the region, especially Indonesia.”
The investor added: “We asked them what their plans are and how much a ban might affect their prospects, especially if other countries such as Vietnam take similar measures.”
An analysis of J&T’s prospectus by Singapore-based research firm Momentum Works shows that TikTok Shop quickly became the company’s top customer after just 18 months, accounting for 7% of total revenue.
“There may be investors who want to bargain on the IPO based on (the ban), but internally we are not too worried about overall business growth in Southeast Asia,” said a person familiar with J&T’s business in the region.
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