| Shares of Nongfu Spring briefly surged 85% in their initial public offering in Hong Kong, temporarily making founder Zhong Shanshan the richest person in China on paper, according to Forbes analysis. On September 9th, Chinese bottled water and beverage company Nongfu Spring starts trading on the Hong Kong Exchange, with its shares opening up 85.12 percent at HK$39.8. Ahead of official market debut on September 8th, the company's shares ended grey-market trading 104.88 percent higher at HK$44.05 on September 7th, after briefly peaking at HK$55. Nongfu Spring could raise HK$8.15 billion after pricing its shares at HK$21.5 each, the company said in a statement.Shares of Nongfu Spring traded at HK$35.05 at 10:37. Nongfu Spring Soars in Hong Kong's Largest IPO in 2020 Shares of Chinese bottled water and drinks producer Nongfu Spring Co Ltd rose by as much as 85.3 percent higher than their initial public offering (IPO) price on their first day of trading on September 8th. The company sold 388.2 million shares, raising about US$1.1 billion, and closed up 54 percent .It opened at HK$39.80 (US$5.14) — compared with its introductory price of HK$21.50 — before finishing its first day of trading at HK$33.10. Its public offering was oversubscribed over 1,000 times by local investors and nearly 60 times by international buyers, locking up a record amount of HK$677.7 billion capital. Nongfu is China's leading bottled water producer and a top-three player in the bottled tea and juice market, according to its prospectus. Its shares closed at 33.10 on September 8th, from a peak of 39.85 U.S. dollars reached soon after the market opened. The price soar at one stage once made its chair Zhong Shanshan the richest man in China, reports said. Based on a calculation of Nongfu shares closing prices, Zhong is worth 52 billion U.S. dollars, ranked No.3 on China's rich list. "I would say we are seeing some institutions who did not get an allocation in the international placement looking to buy the stock on the market," said Steven Leung, UOB Kay Hian institutional sales executive director. The high valuation makes it unlikely the share price will continue to perform as well, Leung said. The IPO was hotly contested with the retail component of the deal 1,148 times oversubscribed, and institutional demand 60 times oversubscribed, according to documents lodged with the Hong Kong stock exchange. Nongfu sold 388.2 million shares in its IPO deal. Five cornerstone investors, led by fund manager Fidelity, hedge fund Coatue and Singapore sovereign wealth fund GIC, took stock in the deal. Its IPO is one of the largest in Hong Kong this year. The IPO was a smash hit in Hong Kong, so much so that the retail portion was oversubscribed by over 1,100 times and Nongfu increased the number of shares allocated to the public. That was after it priced at the top end of a marketed range. Despite the coronavirus outbreak, the IPO market in China and Hong Kong has remained vibrant this year. Companies raised almost US$60 billion via new share sales this year, more than double in the same period last year, data compiled by Bloomberg shows. Hong Kong is becoming an increasingly popular listing venue amid United States-China tensions, while demand from retail investors has been surging as ample liquidity encouraged banks to lend. In China, IPOs produced at least 24 new billionaires in the first half of the year. Founded in 1996, Nongfu Spring, with registered capital of 1.08 billion yuan, is a leading enterprise in packaged drinking water and beverages in China. Nongfu Spring has established more than 20 branches in Beijing, Nanchang and Guangzhou. It reported 3.39 billion yuan, 3.61 billion yuan and 4.95 billion yuan in net profit in 2017, 2018 and 2019, respectively, according to the prospectus. Research firm Frost & Sullivan said in a report Nongfu Spring has maintained the largest share of China's packaged drinking water market for eight consecutive years. In addition to bottled water, the company produces other packaged drinks such as tea, coffee and fruit juices. The company, citing a Frost and Sullivan report, said it had the largest share in China’s packaged drinking water market from 2012 to 2019. Nongfu Spring said its 2019 revenue jumped 17.3% to 24.02 billion yuan ($3.51 billion). But in January to May this year, its revenue fell 12.6% year-over-year to 8.66 billion yuan ($1.27 billion) with sales affected by the coronavirus outbreak, the company said.  Nongfu founder reaps IPO rewards as shares surge on HK debut The surge is pushing the net worth of Mr Zhong Shanshan to over US$51 billion, according to the Bloomberg Billionaires Index. He is now the wealthiest person in China after Alibaba Group co-founder Jack Ma, and the third-richest in Asia. Zhong, the 66-year-old former journalist-turned-health product entrepreneur, owns 84.4 percent of Nongfu's shares. The share surge pushed his fortune to more than $57 billion, calculated as per Nongfu's opening price. At one point, Zhong's wealth even overtook that of Jack Ma's $51.4 billion and Pony Ma's $56.7 billion, before falling. Beijing Wantai Biological Pharmacy, in which Zhong is the biggest shareholder, is one of the leading manufacturers of infectious disease diagnostics and has been traded on the Shanghai Stock Exchange since early this year. Rupert Hoogewerf, chairman and chief researcher of Hurun Report, said Zhong is the 17th Chinese businessman to take the No 1 position in terms of wealth during the last two decades. He is also a good example of the dynamism of the Chinese economy, he said. "Who would have thought that Zhong, a man who sells bottled water, in the age of IT and post-COVID economy, could actually become the richest man in China overtaking Jack Ma and Pony Ma," said Hoogewerf. "Zhong is pretty special. He has built two businesses, both of which have valuations of over $10 billion. Very few people in China have managed to build two $10 billion businesses from scratch." Hoogewerf said after the epidemic, the global economy has suffered significantly, with China being the sole exception. "In China, many consumer tycoons have not just grown but flourished in the past six months possibly because a lot of investors looked for relatively safe havens. Traditional leaders in the consumer sector were able to give investors that reassurance," he said. Zhong founded the company in 1996 and now owns 84 percent of it. Nongfu Spring is a leading enterprise in packaged drinking water and beverages in China. It reported year-on-year increases of 17.1 percent and 17.3 percent in total revenue in 2018 and 2019, respectively. The Hangzhou-based firm intends to use the proceeds for brand building, buying equipment and expanding production sites. Although bottled water still contributes the majority of its income, The company also produces tea beverages and functional drinks, accounting for 13.5 percent and 12.5 percent of the revenue by the end of May this year. The company diversified beyond drinking water to cater to more diverse tastes with fruit juice and other beverages. However, beverage sales suffered losses in the wake of the novel coronavirus outbreak after outdoor activities were limited. Nongfu's revenue has grown steadily since 2017, with aggregated annual growth rate of 17.2 percent. Net profit rose to 4.96 billion yuan ($726.1 million) in 2019, up 20.6 percent on a yearly basis. Bottled water accounted for 61.9 percent of the company's revenue during the first five months of this year. Jason Yu, general manager of Kantar Worldpanel China, said: "The bottled water sector has many established brands but still offers several new growth opportunities." A Kantar report showed that Nongfu Spring is the fastest growing brand in China in terms of engagement with consumers with a penetration rate of 63.2 percent and enough room for further growth. Nongfu Spring’s IPO prospectus showed that retail sales in China’s bottled water market rose to US$29.5 billion in 2019, with Nongfu Spring enjoying a 20% market share, the largest of any company. The market is expected to grow at an average annual rate of more than 10% between now and 2024, according to research firm Frost & Sullivan. Now, Mr Zhong is sharing his success: The Nongfu listing is also creating at least 68 new millionaires. Dozens of them became shareholders just last year, when he and his holding company transferred 0.79 per cent of Nongfu as part of a staff incentive programme. Mr Ma has topped China's richest person list for most of the past six years, after Alibaba went public in the US. The listing of his Ant Group is poised to boost his fortune further - his stake would be worth US$25 billion if it achieves the US$225 billion valuation people familiar with the matter have said it is targeting. |
