China’s biggest hotpot chain Haidilao taps Hillhouse, Morgan Stanley as cornerstone investors in up to US$963 million IPO

Haidilao’s IPO comes amid a sluggish stock market, as the Hang Seng Index enters a technical bear market on Monday

PUBLISHED : Monday, 10 September, 2018, 12:11pm
UPDATED : Wednesday, 12 September, 2018, 5:43pm

Haidilao, China’s biggest hotpot restaurant chain, has lined up US$375 million from five cornerstone investors including Hillhouse Capital and Morgan Stanley for its Hong Kong initial public offering, which is expected to raise as much as HK$7.57 billion (US$963 million).

The Beijing-based firm plans to issue 424.53 million shares at a price range between HK$14.8 and HK$17.8, according to a term sheet on the deal obtained by the South China Morning Post.

At the top end, the fundraising value could make it the fifth largest IPO this year, after China Tower, Xiaomi, Meituan Dianping, and Ping An Good Doctor.

The indicative range values the company between US$10 billion and US$12 billion.

Among the five cornerstone investors, Hillhouse Capital and Greenwoods Asset Management have committed US$90 million each. Morgan Stanley Asia and Morgan Stanley Investment will jointly take a stake worth US$80 million. Snow Lake Capital and Ward Ferry will invest US$80 million and US$35 million respectively.

The hotpot company, which is known for offering alternative services such as free manicures and shoe-polishing for customers waiting for a table, has expanded its operations rapidly to cater to a growing middle class population whose consumption is considered an integral part of China’s new-economy sector.

“Haidilao is known for providing 24-hour hotpot and for its service, so it’s popular among many young Chinese people. Its business model is chef-free, which enables it to expand quickly without worrying about sacrificing food quality,” said David Yu, managing director at Wan Lung Securities, after attending Haidilao’s investor presentation in Hong Kong on Monday.

The hotpot chain owns 363 restaurants in mainland China, Hong Kong, the US, Taiwan, Singapore, Japan, and South Korea, according to the latest version of its prospectus, obtained by the Post on Monday.

It generated first-half revenue this year of 7.3 billion yuan (US$1 billion), up 54.4 per cent on the year. Net profit increased 17 per cent to 647 million yuan during the six-month period.

But some observers were concerned about the valuation, given the current market conditions.

“The market is in a down cycle now. I think the price is too expensive,” said Eric Mak, an equity analyst at the Swiss private bank, Julius Baer, after the investor presentation.

Haidilao’s IPO has arrived during a sluggish period for the stock market.

On Monday, Hong Kong stocks technically entered bear market territory, as the Hang Seng Index closed at 26,613.42, down more than 20 per cent from its recent intra-day peak of 33,484 on January 26.

The 10 biggest IPOs in the past 12 months are all trading below their offer prices. They are China Tower, Xiaomi, ZhongAn Online P&C Insurance, Ping An Good Doctor, China Literature, Jiangxi Bank, BeiGene, Yixin Group, Gansu Bank, and Razer.

Investor sentiment towards new listings has been dampened amid a downbeat backdrop that includes heightened volatility in the stock market, rising interest rates, the deepening US-China trade war, and currency turmoil across emerging markets.

Funds raised from the IPO would be used by Haidilao to repay debt, finance expansion, and develop new technology and projects to enhance food safety and the customer experience, the prospectus showed.

Chinese hotpot giant Haidilao starts book building for Hong Kong IPO as it seeks up to US$1 billion

During the first eight months of the year, funds raised from IPOs totalled HK$187.6 billion (US$23.9 billion), representing a 161 per cent surge from the same period a year earlier, according to data from the Hong Kong stock exchange.

Meituan Dianping, China’s largest on-demand online service platform, began taking orders for its upcoming IPO last week, which is targeted to raise US$4.4 billion. The stock is expected to start trading on September 20.

Other upcoming IPOs include investment bank China Renaissance, which aims to raise as much as US$400 million.

An earlier version of this story misstated Haidilao’s IPO value. It has been updated.