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Exits, Private Equity

Alibaba-Backed Logistics Firm Best Inc Cuts New York IPO Size By Half

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Chinese logistics services provider Best Inc., backed by Chinese Internet giant Alibaba Group Holding Ltd., has cut its New York Stock Exchange IPO by half due to tepid investor demand.

Hangzhou-based Best Inc. reportedly set its IPO price at US$10 apiece, the bottom range of its indicative price range of US$10 to US$11 per share. The company now plans to raise up to US$469 million, compared to previous estimates of raising as much as US$932 million in total, according to earlier security filings.

In addition, Alibaba, which is the largest shareholder of Best Inc with a 23.4% stake, said it is interested in investing as much as US$150 million in the IPO, likely to support and ensure a successful public float. Best Inc., previously known as Best Logistics, isn’t obligated to sell any shares to Alibaba, the filing says.

The offering, the biggest by a Chinese firm in the United States since rival express delivery firm ZTO Express Inc raised US$1.4 billion last October, is a disappointment to backer Alibaba and demonstrates investor worries for financial performances of Chinese logistics services firms. ZTO’s stock price has traded below its IPO price since debuting and is down 22% from the listing price, which kept investor demand for Best Inc.’s shares weak.

China’s logistics industry is growing rapidly, with the market amounting to RMB397 billion (US$60 billion) last year and a 50% year-on-year growth rate. But fierce competition has squeezed profitability for logistics firms. Best Inc. recorded RMB8.1 billion (US$1.23 billion) in revenues during the first six months in 2017, more than double from the same period last year. It suffered a loss of RMB625 million (US$95 million), slightly less than the RMB635 million (US$96 million) a year earlier.

Best Inc. is the fifth largest logistics services provider in China, with a 7.7% market share. The top three logistics players in China are YTO Express Group Co., ZTO Express STO Express and Yunda Express, with 15%, 14%, and 10% market share, respectively, according to China Renaissance Group.

Best Inc. is reducing both the number of shares to be issued and pricing its shares at much lower levels than expected. Last month, the company filed an updated prospectus hoping to raise up to US$932 million by offering 53.56 million American Depository Shares (ADSs) at an indicative range of US$13 to US$15 apiece. An updated filing yesterday showed that the firm is now offering 45 million ADSs with an expected price range of US$10 to US$11 per share, with the final price reportedly set at US$10.

Founded in 2007 by former co-president of Google China Johnny Chou, Best Inc. operates around four million square meters of warehouse and distribution space, tens of thousands of certified franchisees and 660 “multiple operations centers” as of 2016. It also has offices and warehouses in the U.S., Germany, Australia, Japan and South Korea.

Last September, the company raised a US$760 million new funding round led by CITIC Private Equity, with Alibaba’s Cainiao Network, CDH Investments, China Development Bank International Investment Ltd. and Fosun International participating.

IDG-Accel China Capital, an early backer of the company, and Cainiao Network, are the fourth and fifth largest shareholder of Best Inc., with 6.2% and 5.6% stake of the company, respectively.

CMN Special Situations Forum China 2017 Black 468×60
 






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