Strategy

China Courier ZTO Express Raises $1.4B in IPO

The largest initial public offering so far this year in the U.S. gave investors an opportunity to cash in on China’s burgeoning e-commerce industry.
Matthew HellerOctober 27, 2016
China Courier ZTO Express Raises $1.4B in IPO

Chinese package delivery company ZTO Express raised $1.4 billion in the largest U.S. initial public offering of the year but the shares dropped in their market debut.

ZTO’s offering priced at $19.50 a share, ahead of its expected price range of $16.50 to $18.50. It topped the $1.3 billion raised in July by Japanese messaging-app operator Line Corp., giving ZTO a market value of more than $12 billion.

On Thursday, the shares began trading at $18.40 but dropped as low as $17.50.

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ZTO delivers parcels for businesses including Chinese online shopping giants Alibaba Group and JD.com. As The Wall Street Journal reports, the IPO was advertised as a way for investors to cash in on China’s burgeoning e-commerce industry.

“There are very few stocks that allow access to the Chinese consumer, and this is one of them,” Cindi Profaca at IPOfinancial.com told CNBC. “Industry trends in e-commerce are all pointing upward, at least for the moment.”

China had $609 billion of online retail sales last year, almost double the $342 billion in the U.S., according to iResearch Consulting Group. That figure is expected to surge to $1.5 trillion by 2020.

Reuters said ZTO’s listing gives it a head start over such rivals as SF Express, YTO Express, STO Express, and Yunda Express, noting that there is a backlog of about 800 companies waiting for approval to go public in China.

“As concerns grow about a weakening Chinese currency, the New York IPO also gives the company more stable dollar-denominated shares it can use for international acquisitions, according to people close to the company,” Reuters added.

ZTO plans to use $720 million of the proceeds from the IPO to purchase land, build facilities and buy equipment to expand its sorting capacity. The company is the No. 2 express-delivery service in China by volume, with a 14.3% share.

Deliveries for Alibaba account for 75% of ZTO’s business. “Although we plan to expand and diversify our customer base, we still expect to be reliant on the Alibaba ecosystem for the foreseeable future,” ZTO said.

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