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China Roundup: The Alibaba IPO Filing; Zhaopin’s NYSE Listing; and Baby Formula Woes

by Neelima Mahajan

May 9, 2014

Beijing-Animal-figurines-on-roof-650x400

The week that was: The Alibaba IPO, possibly the biggest IPO ever, is finally coming; online recruitment site Zhaopin plans to list on the NYSE; and in a move to boost the local dairy industry, China is clamping down on imports of milk products and baby formula.

Alibaba’s IPO Prospectus Filing

This was arguably the biggest news this week. Chinese e-commerce major Alibaba finally filed its IPO prospectus on 6th May, in what many have called the first step to what could be the biggest IPO ever. Bloomberg reported that “the amount of $1 billion in a U.S. regulatory filing is a placeholder used to calculate registration fees that will change”. It is said that the company is looking at selling about a 12% stake. Experts are speculating that with this IPO Alibaba could raise more than $20 billion, making this the biggest IPO ever in the US. Visa’s IPO offering in 2008, the biggest thus far, was for $19.65 billion while Facebook’s was $16 billion. (To see a graphic comparing different IPO sizes, click here). It is not clear yet whether Alibaba will list on the Nasdaq or the New York Stock Exchange.

The listing will also make Alibaba the largest Chinese company to list in the US. According to Reuters, Yahoo will have to sell nearly 40% of its Alibaba stake in the IPO or sell the shares back to Alibaba directly prior to the IPO. “Yahoo and Softbank may be among the biggest beneficiaries of Alibaba’s IPO, but neither will exercise much control of the Chinese company despite their shareholdings,” the report added.

Alibaba’s IPO is raising the likelihood of increasing numbers of Chinese companies listing in the US. As CNBC put it, “Alibaba’s coming IPO is expected to be so large that it will, like gravity, push or pull others coming before or after.”

Meanwhile, in other news, Alibaba has joined hands with US e-commerce company ShopRunner Inc. ShopRunner Inc. “to enable Chinese consumers to shop on the Web directly from U.S. retailers that otherwise sell little into the world’s largest market”, The Wall Street Journal reports. Alibaba’s users will be able to order goods directly from ShopRunner’s partners and have them delivered to China in 10 days or less.

Zhaopin’s IPO to Debut on the NYSE

While on the subject of IPOs, this week saw Zhaopin, China’s second-largest online recruitment platform by 2013 revenues, file for an IPO on the New York Stock Exchange. It hopes to raise up to $100 million and will use the ticker symbol ZPIN. Credit Suisse and UBS Investment Bank are underwriting Zhaopin’s IPO.

According to TechCrunch, “Companies that stand to benefit from the IPO include Seek International, Australia’s largest online job site, which owns a 79% stake in Zhaopin, and Cavalane Holdings, which holds 19.3%.”

According to Reuters, Zhaopin reported a loss of RMB 20.51 ($3.28) per share for the year ended June 30, 2013, compared with a profit of RMB 1.68 per share a year earlier. “Zhaopin said it planned to use the proceeds from the offering to repay debt, expanding into more markets, develop products and to upgrade its website,” the report added.

Baby Formula Imports in Trouble

China has tightened controls on baby formula imports. The Associated Press reports that from now on only those foreign exporters who are registered with the government are allowed to export milk products into China. According to the same report, the European units of Abbot Laboratories, Mead Johnson Nutrition Co. and Nestle Group are already registered. The Financial Times reports of another regulation that “requires all formula sold in China to carry Chinese-language labelling affixed at the source”.

Milk, especially baby formula, is a contentious issue in China since 2008 when it was found that some Chinese suppliers were adding melamine to milk and baby formula. Melamine can have severe health consequences such as kidney damage. Ever since then many consumers have shifted allegiance to foreign brands, thereby boosting imports from New Zealand, Australia and Europe. A huge grey market for infant formula has mushroomed, and baby formula is routinely smuggled into China from Hong Kong and elsewhere.

The latest move by the Chinese authorities is being seen as the government’s effort to give a fillip to the local dairy industry. As the FT says, “In 2013, China floated a plan to subsidise five domestic producers, including four of the country’s largest dairy producers and the previously unknown Treasure of Plateau, which had begun producing formula from yak’s milk in 2012.” The government of Beijing is giving Sanyuan Group, a local brand, RMB 10.8 million to produce “safe” baby formula.

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