Alibaba-backed Babytree chops Hong Kong IPO by 70 per cent amid glut of new offerings and depressed stock market

Babytree Group, China’s biggest parenting platform operator, slashed the size of its Hong Kong initial public offering by more than 70 per cent as investors’ demand for new shares fades amid a surge in listings in the city and a major sell-off in the equities market.

The company, in which Alibaba Group Holding owns a 9.9 per cent stake and Fosun International a 25 per cent stake, plans to raise as much as HK$2.2 billion (US$282 million) from the first-time sale of up to 250.3 million shares, according to its sales prospectus. It had been reported earlier that it was aiming to raise US$1 billion. Babytree’s shares are expected to start trading on November 27 and the listing price will value the company at HK$14.7 billion.

Babytree, which was founded in 2006 by former Yahoo and Google executive Allen Wang Huainan and private-equity investor Shao Yibo, is the latest company to downsize the value of its IPO, after a jump in the supply of new shares this year and with the benchmark Hang Seng Index entering a bear market.

When asked about why the company had cut its IPO size, Wang, who is also chief executive of the company, said: “To be honest, I do not really care about the IPO size of the company. What I care is after the public offering, whether we have better opportunities to hire talent, build our brands and implement strategic plans.”

The company said, despite the US-China trade war, weak consumption sentiment was not a big concern for it.

“During the past 11 years, there have been ups and downs in the economy. I think in a weak economy, young parents may decide not to buy a new car, a new apartment and luxury goods. They will never decide not to buy baby’s milk powder and paper diapers,” said Wei Xiaowei, head of business at Babytree.

“The maternal and infant industry in China benefit from its large population. To some extent, the industry is really economic cycle-proof,” added Wang.

New listings on Hong Kong’s bourse surged 46 per cent from a year earlier to 150 in the first eight months of 2018, according to stock exchange data. Companies have flocked to Hong Kong to apply to go public after the bourse operator started accepting applicants with either an unprofitable track record or dual-share class structures.

Hong Kong IPOs surge to record high for the third quarter as listings in the rest of the world plunge

As the supply of shares has increased, the bull run on the overall market has reversed its course this year amid an outlook that includes higher US interest rate and an escalating trade war between the world’s largest economy and China. The Hang Seng Index remains down 14 per cent in 2018.

The performance of Hong Kong’s IPO shares has also been appalling. Since July, nearly 60 per cent of IPOs fell below their offer prices on the first day of trading. The eight biggest technology IPOs of the past 12 months are all trading below their IPO prices now.

Babytree will price its shares in a range between HK$6.8 and HK$8.8, representing 13 times to 17 times its estimated per-share earnings for 2019, according to the prospectus. Ninety per cent of the shares will be sold to institutional investors and the rest reserved for the pubic, with the offering to start on Thursday, it said.

The company expects to post a full-year profit of 763 million yuan (US$109.8 million) next year, compared with a loss of 2.18 billion yuan in the first half of 2018. Earnings will probably increase by 50 per cent in 2020, Babytree said in the document.

Alibaba owns the South China Morning Post.