The New York-listed operator of Pizza Hut, Taco Bell and KFC in China plans to offer a slice of the pie to investors in Hong Kong. It's the latest in a lengthening list of China-focused companies "coming home."
Yum China Holdings (YUMC) said on Friday night Hong Kong time that it plans to list its shares on the Hong Kong Stock Exchange starting Sept. 10 under the code HK:9987.
Taken as a whole, Yum China says it is the largest restaurant chain in China in terms of 2019 system sales across all its brands.
The Hong Kong offering has been priced at HK$412 per share. That's an effective price of US$52.52, a 6% discount off the US$55.92 Thursday closing price for its shares on the New York Stock Exchange.
Yum China will be selling 41.9 million shares with a possible "green shoe" of 6.3 million shares should the stock sale go well. The overallotment would bring the total size of the secondary listing to HK$19.9 billion (US$2.5 billion).
The company says it will use the proceeds to expand its restaurant network, invest in digitalization and work on "food innovation and value proposition."
Yum China is a positively prosaic secondary listing for Hong Kong investors to digest. Its business is dramatically affected by the Covid-19 outbreak, although China has recovered fastest among the world's major economies. Still, its restaurants fly in the face of the newfound tastes for exercise and healthy eating that are taking hold in China's biggest cities.
Yum China's secondary offering would pale in comparison to the stock sale planned by Ant Group, a fintech affiliated with Alibaba Group Holding (BABA)
Ant Group filed for an initial public offering in Hong Kong and Shanghai in what may well be the largest IPO in history. Ant Group plans to sell at least US$20 billion in shares and perhaps as much as US$30 billion, which would beat the size of the US$29.4 billion raised by oil giant Saudi Aramco SSE:2222 with its listing last December in Riyadh. It's amazing to think that the world's two largest stock sales in history would have no element on the U.S. markets.
Alibaba led the way with its secondary offering in Hong Kong last November. Alibaba's blockbuster US$12.9 billion secondary was followed this June by the e-commerce operator JD.com (JD) with a US$4.4 billion stock sale and the video game maker NetEase (NTES) , which raised US$3.1 billion in Hong Kong stock.
As a result of those listings, 25.1% of the benchmark Hang Seng Index is now tech, up from just 8.6% five years ago. Video game maker and WeChat app operator Tencent Holdings TCEHY led the way in Hong Kong with a primary listing way back in 2004, but pickings have been slim for digitally inclined Hong Kong investors since then.
Ant Group runs Alipay, China's equivalent of Apple Pay. Together with Tencent's WeChat app, they account for the vast majority of mobile payments in China. The Ant Group offering may come as soon as next month, although the company has yet to announce a date.
The JD.com and NetEase secondary offerings have brought the total capital raised in Hong Kong in both IPOs and secondaries to US$20.3 billion so far in 2020, according to figures from Refinitiv. That's roughly double the pace of 2019, when spring pro-democracy demonstrations gave way to a summer of gridlock-inducing protests in the city.
Hong Kong Exchanges and Clearing HKXCY, the for-profit company that operates the markets in Hong Kong, last month posted best-ever figures despite Hong Kong being mired in a deep recession. Profits and revenue for the first six months of this year were both records.
The JD.com and NetEase listings are the second- and third-largest stock offerings in the world in the first six months of 2020, behind only the US$4.4 billion listing in Shanghai of the Beijing-Shanghai High Speed Railway SH:601816.
There are 32 Chinese companies listed in New York that are prime candidates for secondary listings in Hong Kong, according to China Renaissance Securities. They have a combined market capitalization of close to US$200 billion.
Chinese companies tend to command higher valuations when they sell shares nearer to home, with investors who understand or even use their businesses. But beneath the underlying current is also an undertow against companies from Communist China making the most of U.S. capital markets.
That's because there has been a string of accounting frauds and scandals involving U.S.-listed Chinese companies and because the Communist Party in China has taken to writing itself into the charter of many Chinese companies. Even if it does not do that, it often sets up a Communist Party office within the company that in theory can vet and supersede board decisions.
U.S. Treasury Secretary Steve Mnuchin has announced that Chinese companies trading shares on U.S. markets will have until the end of 2021 to comply with U.S. accounting standards or face delisting. Chinese accounting companies have resisted sharing their audits overseas, purportedly concerned that they may be sharing "state secrets." Many large Chinese companies are state-owned, so corporate information could be considered of state value. "State secrets" is also a term that extends to something as simple as a general's birthday, which might imply his retirement date. So accountants are reluctant to share anything the Chinese Communist Party doesn't want you to see.