Yum China Holdings is moving ahead with its plans for a potential US$2 billion stock offering in Hong Kong, as the operator of KFC, Pizza Hut and Taco Bell in the mainland seeks to become the latest US-listed Chinese firm to pursue a secondary listing in the city, according to people familiar with the matter.
Yum China has been working with investment banks Goldman Sachs and China International Capital Corporation on its Hong Kong listing plans since the beginning of the year, but it is adding additional brokers and support staff as it nears the finish line on the deal.
The firm is hosting auditions for roles on the bumper offering on Friday, the people familar said, requesting anonymity as the information was not public. Yum China spokespeople did not immediately reply to a request for comment.
The Yum China's move comes hot on the heels of successful Hong Kong debuts by NetEase, the world's second-largest mobile games publisher, and JD.com, one of China's largest e-commerce sites.
Shares of JD.com rose 4.2 per cent to HK$235.60 in mid-morning trading in Hong Kong on Thursday after raising US$3.88 billion. NetEase jumped 6 per cent on its first trading day in the city after raising US$2.7 billion.
Similar to its peers, 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. Management is also alive to mounting political risk as relations fray between the US and China. It sees a listing in Hong Kong as going some way towards mitigating this risk, said one of the people familiar.
A spokesman for Yum China said the firm does not comment on rumors or market speculation in response for a request for comment.
Yum China would be the fourth high-profile listing by a major Chinese company with American depositary receipts (ADRs) in the past eight months since Chinese e-commerce giant Alibaba Group Holding's US$12.9 billion secondary listing in November. Alibaba is the parent company of the South China Morning Post.
The US Senate recently approved a bill requiring Chinese firms with ADRs to submit their audits to reviews by the Public Company Accounting Oversight Board and analysts expect US-China relations to worsen ahead of the 2002 US presidential election in November.
As a result, there are expectations of additional "homecomings" by other Chinese companies seeking secondary listings closer to home in Hong Kong.
More than 200 Chinese companies trade on US stock exchanges worth over US$1.2 trillion, Bloomberg data showed, of which 26, including Yum China, would potentially qualify for secondary listings in Hong Kong this year, according to research by China Renaissance and the Post.
"With more ADRs returning home, we expect the Hong Kong market to provide investors a diversified and higher growth investment universe going forward," said Mike Shiao, chief investment officer, Asia excluding Japan, at investment manager Invesco.
The Hong Kong listing comes almost four years since Yum China was spun off from Yum! Brands and listed in New York in November 2016. The company operates more than 9,200 restaurants in 1,400 cities and towns in the mainland.
Yum China said its revenue declined 24 per cent to US$1.75 billion in the first quarter and profit fell 72 per cent to US$62 million. The coronavirus pandemic forced the firm to close as many as 35 per cent of its stores across the mainland.
The company said in April that the pace of recovery was "uneven" and sales and foot traffic remained below pre-outbreak levels as customers continued to avoid going out and practising social distancing. As of April 28, same-store sales were down 10 per cent in the month.
Yum China said it would suspend share buy-backs and dividends in the second and third quarter until it had a better read on how the pandemic would affect the broader economy and consumer behaviour.
The company said at the time the coronavirus, which causes the disease Covid-19, is likely to have a "materially and extended adverse impact" on its financial results for the year.
Despite management's conservative outlook, its shares are trading near all-time highs. On Wednesday, Yum China's shares rose 7.2 per cent to close at US$50.68 in New York.
Stock research analysts have zoomed in on Yum China's early adoption of a digital platform which they believe has positioned the company to benefit from evolving consumer demand for digital ordering and takeaways. Yum China's delivery sales grew 40 per cent year-on-year in the first quarter.
Digital orders, including delivery, mobile orders and kiosk orders, accounted for 84 per cent of sales at KFC and 65 per cent of sales at Pizza Hut in the first quarter of 2020, an increase of 29 and 36 percentage points, respectively, year over year.
Stores openings have gradually resumed since March and its coffee offering has expanded, analysts also noted.
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