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Chinese farming billionaire seeks Hong Kong IPO for global deals

Despite tepid market response, New Hope's Liu Yonghao plans aggressive expansion with M&As

Liu Yonghao, chairman of New Hope Group, was among the first private capitalists to be appointed to the Chinese People's Political Consultative Conference. (Source photos by AP and Reuters) 

HONG KONG -- One of China's first homegrown entrepreneurs, Liu Yonghao, accumulated his fortune as he flourished under paramount leader Deng Xiaoping's economic-opening policy introduced in the late 1970s, and eventually became one of the country's wealthiest individuals. Liu further established his presence as part of the Communist Party's political machinery for nearly three decades.

Now, the agribusiness tycoon is poised to list one of his many companies in Hong Kong with aspirations of expanding through aggressive mergers and acquisitions.

New Hope Service Holdings, controlled by Liu and his daughter Liu Chang, begins trading on Tuesday. The company announced on Monday that the offering price was set at HK$3.80, the lowest of the indicative price range, reflecting tepid response of global investors.

The company was established in 2010 to provide property management services to real estate developed by other members of New Hope Group, the core conglomerate of Liu's business empire.

Liu, a 69-year-old self-made billionaire from Sichuan Province, gave up his career as a science teacher and in 1982 started his own company breeding chickens and quails with his three older brothers. Business was tough during the early days, as China was still recovering from the convulsions of the Cultural Revolution and the subsequent sociopolitical turmoil.

But the company prospered, and Liu now has a net worth of $19.5 billion and ranks 100th on a list of the richest 100 people globally, as compiled by Shanghai-based research company Hurun Research.

Liu Yonghao appears before the opening of the Chinese People's Political Consultative Conference in Beijing in 2019. He also served in the National People's Congress from 2013 to 2018.   © Reuters

He also is rich in political wealth. Liu in 1993 was among the first private capitalists to be appointed a member of the Chinese People's Political Consultative Conference. The position in China's top political advisory body is largely ceremonial, but it has given him and his company a boost and the protection needed to navigate a country where the standings of private enterprises can be precarious.

Now one of the oldest CPPCC members, Liu has served continually since 1993, except when he was appointed to the National People's Congress, a rubber stamp legislature, from 2013 to 2018.

The initial public offering of New Hope Service does not necessarily stand out from other recent new listings in Hong Kong, especially considering its size: The IPO will raise a maximum of 817.4 million Hong Kong dollars ($105.3 million), including the full exercise of the overallotment option.

That pales in comparison with recent blockbuster offerings by other mainland companies, including Kuaishou's $6.1 billion in February and Evergrande Property Services' $2.1 billion in December.

What distinguishes New Hope Service's IPO is that Liu, a household name in China, is set to own his first listed unit outside of the mainland, and that company has stated it will use 70% of the IPO's proceeds for "strategic acquisitions and investments."

Liu made a brief appearance in a recorded video clip during a pre-IPO online press conference on May 10. His speech was largely perfunctory, but he used the opportunity to praise Hong Kong's global status as an IPO hub where "global, professional and free capital markets exist."

His lieutenant, Chen Jing, chief executive of New Hope Service, disclosed part of the company's M&A plans, which she described as "the necessary means for the company to rapidly develop and expand its size."

While Chen did not offer specifics, she said the company -- which manages 74 properties with a total gross floor area of 11.4 million sq. meters in mainland China as of May 3 -- will be looking for targets in strategically important cities with higher-than-average spending and where more individuals with purchasing power reside, among others. The search is on in coordination with other New Hope Group companies, just as the unit relies heavily on resources and orders from the group.

According to the announcement from New Hope Service on Monday, the company will spend about HK$495 million for that purpose out of HK$706.8 million, assuming no overallotment option is exercised. The company will remain more than two-thirds owned by a trust controlled by Liu and his daughter even after listing in Hong Kong.

A Hong Kong company, which unlike mainland companies has no restrictions on capital movement beyond its borders, will bring flexibility and new options for Liu's global dealings -- something he has been pursuing for decades.

New Hope Group, in which Liu serves as chairman, already has a presence in more than 30 markets, since its first overseas expansion in Vietnam in 1999. In recent years, Liu has openly positioned himself as a spearhead in going overseas and investing in countries that are part of Beijing's sprawling Belt and Road Initiative.

In an interview with Nikkei in 2017, Liu pledged to splash $1 billion abroad over the next three years in Africa and Europe, promoting the geopolitical strategy fostered by Chinese President Xi Jinping.

"In addition to its core agriculture and food businesses, New Hope Group will aim to achieve growth in other businesses, such as health care," he told Nikkei in March of that year. It is unclear whether that investment pledge was carried out, and the company did not respond to a request for comment.

Liu currently controls three listed companies -- New Hope Liuhe, New Hope Dairy and Xingyuan Environment Technology -- but they all trade on mainland exchanges. He was an initial investor in the country's first privately funded banks, China Minsheng Bank, and serves as vice chairman on its board. A unit of Minsheng Bank was one of eight bookrunners of New Hope Service's IPO.

An employee of New Hope Liuhe, one of three mainland-listed units of New Hope Group, moves a sack of pig feed inside a plant at a facility in Sichuan Province.   © Reuters

By listing New Hope in Hong Kong, Liu is moving closer to his role model, Li Ka-shing, one of Asia's richest and most successful businessmen. In a 2009 biography of Liu, as well as in previous interviews, Liu said he carefully studied how the Hong Kong tycoon had developed his wealth from scratch and created a global corporate empire by branching out from his original artificial flower production.

Liu's family was so poor that his parents had to put up their third son for adoption during childhood. "Actually, I wasn't able to wear shoes until I was 20," Liu said in an interview with mainland media in 2006. Since private enterprises were treated as outcasts, even his request for a 1,000 yuan (about $520, the average exchange rate at that time) bank loan was rejected.

Eventually blossoming from China's economic reforms, the family business expanded quickly by moving into other livestock and feed. The company -- then called Hope Group -- became the first private conglomerate officially registered by the central government in 1992, the year when Deng's landmark "southern tour" rebooted the private-sector economy that had been stalled after the 1989 Tiananmen Square crackdown.

The Liu brothers in 1995 split up their company to form four separate entities, all of which inherited the word "Hope" -- Continental Hope Group, East Hope Group, West Hope Group and New Hope Group.

The most successful, in terms of the personal wealth derived from the brothers' own businesses, are New Hope and East Hope, which has an agribusiness and expanded into aluminum, chemical, energy and real estate, and is run by the second eldest brother, Liu Yongxing. Liu Yongyan, the eldest, is head of Continental Hope, while Liu Yongmei (also known by his adoptive name, Chen Yuxin) runs West Hope.

Whether Liu is able to imitate the path of Li Ka-shing and successfully branch out further into new businesses remains to be seen. The initial response from global investors to his first Hong Kong IPO is lukewarm at best.

"I admire his arduous enterprising spirit that brought him success from nothing," Liu was quoted in another local media interview in 2006. Liu said that what he admired even more was how Li has "kept up his invincible position even after he made his enterprise so big and continued to grow."

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