Pizza Hut, KFC operator Yum China gets the green light to pursue secondary stock listing in Hong Kong

The operator of KFC, Pizza Hut and Taco Bell in mainland China could seek a secondary listing as soon as September, a source says
The listing would mark the latest Chinese firm to seek a secondary listing in Hong Kong as US-China tensions rise

Banking & finance

Chad BrayandAlison Tudor-Ackroyd

Published: 5:35pm, 28 Aug 2020

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Yum China Holdings received approval on Friday to move forward with a potential US$2 billion stock offering in Hong Kong, according to people familiar with the matter.

A listing by the operator of KFC, Pizza Hut and Taco Bell in mainland China would mark the latest “homecoming” of a US-listed Chinese firm as more companies pursue secondary listings in the city against the backdrop of rising tensions between Washington and Beijing.

The company is considering a listing as soon as September, according to one person, who was not authorised to discuss the matter publicly.

Yum China declined to comment on Friday.

The Hong Kong listing comes almost four years after Yum China was spun off from Yum! Brands and listed in New York in November 2016. The company operates about 10,000 restaurants in 1,400 cities and towns in the mainland.

Yum China said its revenue declined 11 per cent to US$1.9 billion in the second quarter and profit fell 26 per cent to US$132 million as China experienced an uneven recovery from the coronavirus pandemic.

The health crisis forced the firm to close as many as 35 per cent of its stores across the mainland in the first quarter. Almost all of them had reopened in the second quarter.

Same-store sales declined 11 per cent year over year in the second quarter. Delivery and takeaway accounted for more than half of its sales in the three-month period.

Similar to other Chinese firms pursuing secondary listings, Yum China is seeking to diversify its shareholder base and believes investors in Asia will be more familiar with consumer trends in its home market. A listing in Hong Kong is also a potential hedge against a further worsening in US-China relations.

A working group of top US regulators recommended this month that foreign issuers, including Chinese firms, be delisted from American bourses if they do not provide access to the working papers for their audits for review by January 2022. China was the only non-cooperating jurisdiction mentioned by name in the group’s report.

The US State Department asked American colleges and universities in an August 18 letter to sell their holdings of Chinese companies in their endowments, warning those companies could face a “wholesale delisting” from American stock exchanges by the end of next year. The Trump administration has also tried to discourage pension funds and other US investment funds from investing in Chinese firms.

The potential listing by Yum China comes on the heels of Ant Group, China’s largest digital payments provider and digital finance platform, filing applications on Tuesday to proceed with a dual initial public offering in Shanghai and Hong Kong.

The dual listing of Ant, the operator of Alipay and an affiliate of Alibaba Group Holding, is widely expected to surpass Saudi Aramco’s US$29.4 billion listing last December, the world’s biggest fundraising. Alibaba is the parent of the South China Morning Post.

Several US-listed Chinese firms are considering secondary listings closer to home or taking private deals this year as the American authorities have taken more aggressive action against Chinese companies. Measures have included forcing ByteDance to sell the US operations of its video sharing app Tik Tok and issuing executive orders to ban unspecified transactions with TikTok and WeChat, which is owned by technology giant Tencent Holdings.

Another attractive reason to consider a listing closer to home may be the fact Chinese tech firms Alibaba, JD.com and NetEase raised nearly US$20 billion combined in their secondary listings in Hong Kong since November.

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