Chinese logistics company ZTO Express is set to raise as much as $1.5 billion in what could be not only the largest initial public offering in the U.S. this year but also the biggest U.S. IPO by a Chinese company since the $25 billion public market debut of e-commerce giant Alibaba Group (BABA) in 2014.
According to the company's IPO prospectus filed with the Securities and Exchange Commission, it intends to list on the New York Stock Exchange later this month under the ticker ZTO. The Shanghai-based company plans to sell 72.1 million American depository shares at $16.50 to $18.50 each.
ZTO Express counts some of the biggest Chinese online-shopping platforms such as Alibaba, JD.com Inc. (JD) and others as its clients. It delivers parcels and packages to over 96% of China's cities and counties as of June 30, 2016.
China is the world's largest express delivery market, with total parcel volume of 20.7 billion in 2015, approximately 1.5 times the total parcel volume of the United States, according to a report from iResearch Consulting, an independent research firm.
Experts believe that ZTO Express, which counts Alibaba as its largest customer, has chose to list in New York to avoid the excessive bureaucracy in listing in China and a long waiting period for approval at home.
"There is by some estimates a 3-5 year waiting period to IPO in China with favored firms receiving preferential access. It is not uncommon for private firms to go public outside of China if they will face a long wait to IPO," said Christopher Balding, associate professor of finance and economics at the HSBC Business School of Peking University Graduate School.
Compound that with the fact that ZTO is growing at a remarkable clip--revenues increased to RMB6.1 billion (US$915.8 million) in 2015 from RMB3.9 billion in 2014 and from RMB2.5 billion in the six months ended June 30, 2015 to RMB4.2 billion in the same period in 2016-- and the strength of e-commerce and technology IPO's from Asian companies this year.
The potentially high-profile IPO of ZTO Express follows the $1.3 billion public market debut of Line Corp. (LN) in July. The Japanese messaging app that dominates the chatting app market in Japan, Taiwan and Thailand leads a string of Asia-based companies that increasingly choose to list on U.S. exchanges.
According to statistics from Nasdaq, seven Asia-based companies have listed in the U.S. so far in 2016, five listed on Nasdaq. A total of 121 Asia-based companies have launched IPOs on U.S. exchanges from 2010 to 2016.
Asia-based companies are fiercely exploring U.S. listings for a multitude of reasons such as the opportunity to join the global economy, access to the world's largest and deepest liquidity pool, advantages of the branding opportunities and the visibility opportunities that come with U.S. listings.
"We have teams on the ground both in Hong Kong and Beijing. We are specifically developing strong relationships with private companies and working with them through the process of transforming from private to public," said Joe Brantuk, Vice President of New Listings & Capital Markets at Nasdaq.
"The trend and the characteristics this year for China-based and Asia-based companies that are listed with us are mainly in the two sectors, biotechnology and e-commerce technology. We believe that trend will carry on for 2017," said Brantuk who predicts that 12 to 16 Chinese companies in the healthcare and technology sector will be listed on Nasdaq next year based on current pending applications and listing qualifications.
Chinese companies including trading and investment service company Yintech Investment Holdings Limited (YIN) , online English language learning provider China Online Education Group (COE) , pharmaceutical company Hutchison China MediTech Ltd. (HCM) , textiles and health supplements manufacturer Shineco Inc. (TYHT) and data analysis software company Gridsum Holding Inc. (GSUM) , have all chosen to launch their IPOs in the United States.
Despite the fact that ZTO's timing is right, there are still uncertainties that should be considered by the investors thinking about buying the stock when it does list.
First off, according to the filings ZTO cites significant reliance on the Alibaba ecosystem and the overall Chinese e-commerce industry as its biggest risk factor for business and growth. The company's parcel volume generated from Alibaba's e-commerce platforms accounted for approximately 80%, 77% and 75% of the total parcel volume processed in 2014, 2015 and the six months ended June 30, 2016, respectively.
Overall tightening of the labor market in China and failure to comply with Chinese laws and regulations could also adversely impact the growth and financial conditions of ZTO Express.
Balding, the Peking University professor, believes that there have been excessive and irrational fears of the Chinese economy.
"Furthermore, I think there are some valid unanswered questions about the state of Alibaba finances so if investors are worried about these factors it is possible it could be a negative reaction," he said. "However, if they instead focus on the continued and very likely sustained growth of online retailing, which is happening and positive, then it is very possible that it will be positively received."