Dental services group Arrail to consider Hong Kong listing as it prepares for US$5b expansion

Arrail Group says it will only list in Hong Kong if it can qualify for a dual class share structure

PUBLISHED : Sunday, 14 January, 2018, 5:42pm
UPDATED : Sunday, 14 January, 2018, 5:47pm

Arrail Group, one of China’s largest dental services providers, faces a dilemma on whether to list shares in Hong Kong or New York.

In the eyes of founder and chairman Robert Zou Qifang, Hong Kong’s geographical and cultural proximity to the mainland is a clear advantage, but the ban on dual-class shares structure for non-technology firms listed in the city is a major stumbling block.

“Hong Kong’s biggest advantage is its proximity and good investor understanding of the mainland market,” he told the South China Morning Post on the sidelines of the JP Morgan Healthcare conference in San Francisco.

“The United States’ financial market is more mature where investors have a better understanding of growth industries.”

After raising US$200 million via four rounds of private share placements since 2010, Zou believes the company is almost ready to go public.

The company operates 10 dental clinics in Beijing, and 91 in total across the country, employing 645 dentists. About 30 additional dental clinics are planned to open this year. Zou says he has a target of 1,000 clinics nationwide within the next eight years. The expansion will require 5 billion yuan (US$774.04 million) over seven years to 2025.

It would be partly funded by partnering with senior dentists working at its clinics, he said.

Hong Kong Exchanges and Clearing last month said it plans to allow technology and “new economy” firms with over HK$10 billion of market value to list with multiple classes of shares carrying different voting rights.

The change was aimed at attracting more jumbo listings to Hong Kong.

Zou said given its high-growth nature in an emerging industry, Arrail would try to convince HKEx to let it list while keeping its dual-share structure, adding it was already close to the HK$10 billion threshold after last year’s private share sale.

“As high growth firms typically require multiple share placements that severely dilute the original owners’ holdings, a dual class shares structure is essential for maintaining our vision and direction,” he said.

Arrail has yet to engaged in talks with HKEx on the matter. Should an agreement fail to materialise, Zou said he would bypass Hong Kong in favour of New York.

Zou expects China’s dental service market to grow to 1 trillion yuan by 2030, reflecting an annual growth rate of 19 per cent.

China’s direct oral health care spending per capita was US$9 in 2016, compared to the global average of US$43.