China’s express delivery companies race for IPOs
Rush for listings in highly competitive sector unlikely to benefit anyone
Leading players in mainland China’s express delivery market, the world’s largest, are racing to be the first to tap the capital market – including those that previously showed little interest in going public when the industry landscape was much less contested and much more lucrative.
Following a statement from SF Holdings last week confirming it was planning to list in the A-share market, SF Express – which aspires to become China’s Fedex/UPS – is finally hitting the market, with some valuing the company at 100 billion yuan (HK$118.8 billion).
According to mainland media reports, SF’s low-profile founder and chairman, Wang Wei, declared his disinterest in a public flotation a few years ago.
“The plus of going public is just money – getting the funding needed for the growth of the company,” he was quoted as saying. “SF needs money too, but SF shall not list for money. Once listed, the company becomes a money-making machine, every fluctuation of its share price rattles the nerves of the company. That is not good for running a company.”
It appears Wang, a mysterious entrepreneur famous for turning away journalists and investors alike, can no longer afford to turn investment away given SF’s ambitious growth plan, which includes building a cargo airport of its own in Hubei on top of a fledgling freighter fleet.
Mainland express companies are falling victim to their own success, as their exponential growth along with the e-commerce industry had outpaced their income growth. The fear of lagging behind – from both the companies and their backers – is driving a rush for initial public offerings that will probably do little good for anyone in the race.
SF said in the announcement it was being “counselled” on the IPO by Citic Securities and China Merchants Securities – two shareholders introduced in 2013 in the only instance of Wang accepting investment. A consortium that included Oriza Holdings, CITIC Capital and China Merchants Holdings gained a 25 per cent stake in SF for an undisclosed amount – widely reported to be 8 billion yuan.
Alibaba-backed YTO Express is likely to be the first to land in the Shanghai market via a back-door listing through garment company Dayang Group, with Dayang having notified the exchange last month. STO Express, which revealed its back-door listing plan via plumbing company Zhejiang IDC Fluid Control in October, is likely to be the first to hit the Shenzhen market.
ZTO Express, another delivery firm, has said no decisions have been made regarding the time frame or location of its potential listing, after reports last week from the Wall Street Journal and Reuters’s IFR saying that it was planning listings in the United States and Hong Kong.
The logistics industry in China has reached a tipping point where consolidation and refinancing is imminent, analysts say. “The timing is bad. But wait any longer and you’d be in bigger trouble – when others are listed and you are not,” one logistics sector analyst said.
Despite rising costs, intensifying competition has seen the Chinese express market’s rates spiral downwards. According to the state post bureau, rates dropped more than 35 per cent between 2011 and last year.
Competition from e-commerce giants’ own logistics companies is expected to further squeeze margins at express companies, which lack product differentiation. STO, YTO, ZTO, bearing similar names and founded by the same circle of entrepreneurs in Tonglu, Zhejiang province, are now closely competing against each other for the top three positions by market share. Guangdong-based SF Express, sits with the state-owned EMS in the upper-tier market with higher rates.
The stock market is now their common battleground. Yunda Express, Quanfeng Express and Deppon Logistics have all announced intentions to list.
But the financial benefits and aura of being a listed company aside, compliance requirements and control may prove thorny issues for many of the companies that quickly rose to prominence under a founder’s sole control, let alone market volatility that threatens to destroy value at any time.
As they say: “Be careful with what you wish for.”