ZJLD raises US$676 million in Hong Kong’s biggest IPO of the year
Did you know that China is the biggest alcohol market in the world?
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The backstory: Did you know that China is the biggest alcohol market in the world? And at the top of the Chinese alcohol industry is baijiu, a potent, clear spirit most commonly distilled from sorghum (although it’s sometimes made from other grains). Baijiu is super popular among Chinese drinkers, accounting for over two-thirds of the country’s alcohol market. And its popularity in China has given it the reputation of being the most-consumed spirit in the world by volume – even beating out common spirits like vodka and whisky.
More recently: One of the top players in the game is Wu Xiangdong, aka the Baijiu Godfather, who controls 12 different spirits brands. One of those is Vats Liquor Chain Store Management JSC, a distributor that went public in 2019. Wu first got to know private US equity firm KKR in 2010 when it initially invested in Vats (now exited). Then, KKR recently invested in ZJLD, a holding company for four of Wu’s spirits brands.
The development: The liquor giant ZJLD just shattered some records by becoming the first baijiu maker to go public outside of mainland China with an initial public offering (IPO) in Hong Kong. And, no big deal or anything, but it raised a whopping HK$5.3 billion (US$676 million), making it the biggest IPO in Hong Kong this year. With this sale, Wu Xiangdong, who will own about 69% of ZJLD post-IPO, is set to see his net worth also spike to over US$4 billion. And that’s a light estimate, considering Wu has eight other baijiu brands that are still private, including Jinliufu, and they don’t share financials.
KKR's stake in ZJLD will drop to around 14% after the IPO from about 16%. Shares of ZJLD will start trading on Thursday, with Goldman Sachs and China Securities International joint sponsoring the deal.
Key comments:
“Baijiu companies generally have higher valuations than those for other alcoholic drinks,” said Kakei Lam, fund investment officer at Metaverse Securities in Hong Kong. “ZJLD has multiple brands in operation, and it helps the business to cater to different customer groups.”
“ZJLD’s sales could benefit from the ongoing premiumization trend in China’s baijiu market as consumers’ purchasing power rises coupled with an increase in willingness to upgrade,” said Ada Li, an analyst at Bloomberg Intelligence.
“That recovery of consumption should provide some comfort to policymakers and will probably nudge them a little further in the direction of not wanting to apply a significant amount of macroeconomic stimulus and starting to think about toning down the generosity of monetary policy,” said Louis Kuijs, S&P’s chief economist for Asia Pacific. “I think the growth momentum will be maintained.”
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