China’s largest duty-free group stages Hong Kong listing despite zero-Covid

Travel retail giant China Tourism Group Duty Free has raised $2.1bn in a downsized Hong Kong share offer, as a sweeping Covid-19 lockdown in the tropical island province known as “China’s Hawaii” wreaked havoc on the company’s biggest market.

The world’s largest retailer of tax-exempt wine, cosmetics and luxury goods priced 102.8mn shares at HK$158 (US$20.14) each, coming in well below a maximum offer price of HK$168 and marking a discount of more than 27 per cent on the closing price of the duty-free group’s Shanghai-listed shares on Thursday.

That reduction also came as CTG’s Shanghai stock has dropped almost 10 per cent over the past month. The company, which has a near-monopoly on the Chinese market, also sells tax-exempt goods domestically.

CTG had received approval to list in Hong Kong on August 9, days after surging Covid-19 cases prompted mainland authorities to lock down the top tourist destination in Hainan, CTG’s primary source of sales revenues.

The enforcement of President Xi Jinping’s zero-Covid policy in the holiday hotspot of Sanya has pummelled economic activity in Hainan, which accounted for 72 per cent of CTG’s sales in the three months to the end of March.

The province had previously benefited from Covid-19 travel restrictions imposed in 2020, which forced most of the country’s biggest spenders to holiday inside China, where virtually all of CTG’s shops are located.

But the latest lockdown, which has run for nearly two weeks, is the largest in China since the two-month shutdown of Shanghai earlier this year and has left tens of thousands of holidaymakers trapped in quarantine in Sanya, which is as well-known domestically for its duty-free luxury shopping as its five-star beach resorts.

Authorities have scrambled to contain the Covid outbreaks, with local media publishing photos of officials in hazmat suits swabbing the throats of fish freshly caught off the island’s coast to check for the virus.

CTG noted in its prospectus that Hainan passenger traffic in the second quarter was down 60 per cent from a year ago as a result of a two-month lockdown in Shanghai, warning that a resurgence in cases could impact revenues.

But it assured investors that the highly contagious Omicron variant was “under effective control and the government is devoted to speeding up economic recovery and the resumption of business activities”.

The subdued showing for CTG’s Hong Kong listing came despite additional support from a suite of cornerstone investors including funds run by China’s central government, shipping conglomerate Cosco Shipping and the Shanghai airport’s investment arm, whose combined share purchases accounted for roughly 40 per cent of the offering.

Analysts at Citigroup said that beyond the short-term impact of the Sanya lockdown, CTG’s “mid-to-long-term structural growth remains intact” thanks to domestic travel demand, growth in onshore spending and “unparalleled operation capabilities”.

CTG had previously planned to raise as much as $5bn in Hong Kong last December but postponed listing plans as new restrictions on offshore IPOs sent share prices for many of the largest listed Chinese groups plunging.

But the downsized haul of $2.1bn still represents the biggest listing this year for Hong Kong, which has struggled to attract Chinese companies because of the crackdown on offshore share sales. IPO fundraising in the city was down about 90 per cent in the first six months of the year.

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