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Employees work at a sorting centre of Zhongtong (ZTO) Express ahead of the Singles Day shopping festival in Beijing on November 8, 2015. Photo: Reuters

China’s big five parcel delivery companies seek to raise funds ahead of consolidation wave

China’s top five parcel delivery companies explore fund raising activities in preparation for expansion, upgrade

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China’s five largest delivery companies are seeking to raise funds via share sales at home or abroad in the near future, in an effort to build up their war chests ahead of an expected industry consolidation as Beijing encourages a fast-tracking of development in the online economy.

The big players plan to use the funds to upgrade and expand their facilities, and to buy out smaller rivals.

Four of the top delivery companies in China, including SF Express, YTO Express, ShenT

ong Express and Yunda Express have been engineering their own backdoor listings on the domestic A-share market. ZTO Express, a delivery company that ranks in the top five, plans to raise as much as US$1.3 billion (HK$10.1 billion) via an initial public offering in the United States.

“A listing status gives the companies the opportunity to hone their image and increase their financial strength,” Zhao Xiaomin, an angel investor and independent researcher in China’s logistics sector said. “The ultimate goal is to enhance business efficiency and secure a leading role in the intense market.”

The breakneck growth of online shopping in China helped to foster a major expansion of the delivery businesses over the past decade.

Beijing, facing a severe economic slowdown, is encouraging internet-related businesses to fast-track their expansions as a way of transforming the investment-led economic growth pattern to a more sustainable one driven by consumption.

Delivery services have been singled out by economists as a bright spot that could help the mainland combat an economic slowdown and counter rising unemployment.

According to China e-Business Research Centre, online sales across the mainland topped 18 trillion yuan (HK$20.7 billion) in 2015, up 27 per cent from a year earlier.

Privately-owned delivery companies handled 18.5 billion deliveries in 2015, accounting for 89 per cent of the national total.

The top five players took a lion’s share of the businesses.

But they are grappling with a narrower profit margins due to constant price cutting.

Average price per delivery dropped more than half from 28.5 yuan in 2007 to 13.4 yuan last year.

A backdoor listing, or reverse merger, enables companies to raise fresh funds through a share placement.

Express companies will be able to use the proceeds to buy land, upgrade transportation facilities and sorting equipment and increase hiring to expand their businesses.

A stronger delivery sector could not only create new jobs in an economy battered by a declining manufacturing sector, but also facilitate commercial activities in the world’s most populous market.

On the mainland, spending on logistics represents 16 per cent of the country’s gross domestic product, nearly double the 8 per cent in developed nations.

The logistics sector in China has come under fire for ineffective utilisation of resources and other wasteful practises.

Beijing expects to slash around 1 trillion yuan in national logistics costs by 2020, banking on the latest technology to improve the efficiency of transportation and delivery services.

“It’s still not too late to take concrete steps in rejuvenating the logistics industry,” said Lu Ming, a manager at Cosco Logistics. “The industry is of vital importance to the national economy.”

China has more than 8 million logistic companies, 90 per cent of which are small-scale and individually owned.

“I believe that a buoyant logistics sector could be more than enough to underpin the slowing economy,” said Xiong Hao, assistant general manager of transport firm Shanghai Jump International. “With the goods and commodities purchased and delivered at a high speed, there’s no reason that the economy would be weak.”

This article appeared in the South China Morning Post print edition as: Delivery firms eye listings to expand
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