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Hong Kong investors welcome Chinese 'homecomings' from New York

Huazhu gains despite short seller report while ZTO and Zai Lab close sales early

Huazhu Group, operator of the Hanting Hotel chain and others in China, gained on its trading debut in Hong Kong despite a short-seller report alleging financial misconduct. (Source photos by AP)

HONG KONG -- Signaling sustained interest in Chinese companies securing backup listings in Hong Kong, investors on Tuesday sent shares of hotel operator Huazhu Group up as much as 5.1% on their trading debut and gave so much support to offerings by courier service ZTO Express and biopharmaceutical producer Zai Lab that the two stock sales ended a day early.

The demand for the three should comfort other U.S.-listed Chinese companies, including internet search leader Baidu and online retailer Boazun, which are looking at establishing secondary listings in Hong Kong amid the growing tensions between Beijing and Washington.

The interest in the new listings also bodes well for Alibaba Group Holding affiliate Ant Group, which is aiming for a record-setting initial public offering of at least $30 billion in Hong Kong and Shanghai.

Huazhu Group shares in Hong Kong closed up 4.7% at HK$311, compared with an issue price of HK$297.

A short seller report issued overnight by Bonitas Research alleging financial misconduct by Huazhu, which counts Accor as a shareholder, failed to dampen local demand. The report, which the company said had no merit, pushed its shares lower 3.7% on the Nasdaq Stock Market on Monday.

"It vindicates our stance that these companies will in most cases get a better valuation in Hong Kong and the mainland as both retail and institutional investors appreciate the progress made by the companies," said a person involved with the Huazhu deal.

ZTO Express has offered pricing guidance at HK$218 a share, a 1.9% discount to its closing in New York on Monday following a 6.5% drop. This pricing would result in offering proceeds of $1.27 billion, two people familiar with the deal said.

"Investor demand was so overwhelming, with the (order) book multiple times covered, that we had to close the offering a day early," said a person involved in the deal. "While the shares have fluctuated in the U.S., they are being bid aggressively here, signaling Asian investor belief in the business model and understanding of the growth potential."

Zai Lab is set to price its offering at a 1.1% discount to its Nasdaq close on Monday following a 7.5% fall. At HK$562 a share, it would raise $769 million.

Ant Group received the go-ahead for its listing plans last Friday from Shanghai's Nasdaq-style STAR Market. It is set to meet the Stock Exchange of Hong Kong's listing committee as early as Thursday, people familiar with the transaction have said. The stock sale is expected to launch after China's extended National Day holiday break ends Oct. 8.

Reflecting investor demand, the discounts offered by ZTO and Zai Lab compared with their New York-traded share price are the tightest for recent homecoming listings.

Alibaba Group Holding, the first of the homecoming listings, priced its secondary offering at a 2.6% discount last November when it raised $12.9 billion. JD.com and NetEase finalized their offerings earlier this year at discounts of 3.9% and 2%, respectively, to their U.S. closing prices.

Yum China, which operates KFC restaurants in China, sold shares at a 4.8% discount but is the only homecoming company whose shares now trade below their issue price.

Bonitas, which Matthew Wiechert started after parting ways with Glaucus Research co-founder Soren Aandahl in 2018, said Huazhu "lied about the ownership of its hotel portfolio to produce fake financials." Bonitas also alleged the hotel group concealed operating expenses to artificially inflate profits.

Bonitas previously published critical reports on Australia-listed Rural Funds Group, Chinese peer-to-peer lender Hexindai, clothing retailer Bosideng, Chong Sing Holdings FinTech Group and tissue maker Hengan International Group.

Huazhu in a statement on its website said the short seller report was "without merit."

"It contains numerous errors, unsubstantiated statements and misleading conclusions regarding the company's business and operations," the company said.

U.S.-listed Chinese companies are looking at Hong Kong as a possible secondary listing destination amid moves by U.S. regulators and legislators to push out Chinese companies by January 2022 unless they open their books to American auditors.

Chinese companies have declined to do so, citing domestic laws that ban such access on the grounds that the statements could contain state secrets.

Since November last year, four companies -- Alibaba, NetEase, JD.com and Yum China -- have raised more than $20 billion in Hong Kong. A further 36 Chinese companies listed in the U.S. qualify for listing in the city based on the Hong Kong exchange's rules.

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