The sign of Mixue Bingcheng is seen at its shop in Shanghai, China August 10, 2023. REUTERS/Aly Song

The first working day of 2024 brought news to perk up lawyers, bankers and others dismayed by Hong Kong’s falling IPO fortunes. Mixue Bingcheng and Guming, both among China's top five tea beverage chains in terms of store count, submitted listing prospectuses to the Hong Kong Stock Exchange (HKEX), with the former expecting to raise between $500 million to $1 billion, and the latter between $300 million to $500 million.

And they’re not all that’s brewing in the SAR’s listing horizon. Another tea chain, ChaPanda (also known as Chabaidao) submitted its prospectus in December. These brands hope to follow in the footsteps of Nayuki Holdings, which raised $650 million back in 2021. And “six other tea beverage companies are also in the process of preparing for IPOs,” according to the food & beverage (F&B) services legal team at Jingtian & Gongcheng, which declined to name the companies.

Over the last few years, China's tea beverage chains have been rapidly taking over the streets and malls in both first-tier cities and emerging urban centres. And with fundraising now on their minds, the new battlefield is the HKEX.

HONG KONG ON THE MENU

The Jingtian & Gongcheng team is advising on all four of the above IPOs. It notes a recent trend of mainland F&B companies shelving their initial plans for A-share listings, and instead looking south to Hong Kong.

“Given the stable performance of F&B enterprises in the Hong Kong stock market, and their market capitalization meeting company and investor expectations, a large number of enterprises have chosen to list in Hong Kong,” the team says. It notes that 2020-2021 was a particularly busy period in this regard. with listings from the likes of  Jiumaojiu Group, Yum China, Nayuki Holdings, and bistro chain Helens.

“Upcoming listings include Hangzhou cuisine chain Green Tea Group, hotpot chain Laowang, QixinTian and Yang Guofu, Chinese fast food chain Country Style Cooking, Japanese-style food chain Kamii and more,” it adds. “For HKEX, F&B enterprises, especially those in the tea beverage sector, constitute a strong and continuously growing pipeline,” it adds.

And the pipeline keeps growing. On Jan. 17, the Anhui-based chain restaurant Xiaocaiyuan became the latest mainland F&B enterprise to submit a prospectus in Hong Kong.

KEY INGREDIENTS

So what’s driving this recent trend of F&B enterprises queuing up to list in Hong Kong? One main reason, according to the Jingtian & Gongcheng team, is the investment strategies of their investors, who are looking to exit. Also, for tea beverages in particular, the industry is in a transformative phase, with their leaders seeking to raise funds to evolve and expand.

Then there is the influence of the China Securities Regulatory Commission, which recently classified the F&B industry as a non-encouraged category under the A-share red and yellow light system, indirectly suggesting that these enterprises halt their A-share listings and turn to Hong Kong, the U.S., or the Beijing Stock Exchange instead.

Currently, mainland F&B enterprises applying for listings are actively working towards completing their Hong Kong IPOs. Even as these enterprises increasingly embrace the Hong Kong capital market, they tend to prefer Chinese lawyers with ample experience in the same industry, according to the Jingtian & Gongcheng team.

And unsurprisingly, the F&B sector remains a promising one for lawyers. “F&B enterprises, especially those with a franchise model, have higher net profits, and thus they are able to afford market-standard legal fees,” the Jingtian & Gongcheng team tells ALB.