China and India: A tale of two New York IPOs
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China and India: A tale of two New York IPOs

ZTO Express underlines US affection for ambitious Chinese firms; Azure Power shows how much farther India’s have to go.


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Lai Meisong strikes the bell to open trading on the NYSE

Two starkly contrasting initial public offerings early in the final quarter of the year highlight how much emerging-world corporates still covet a US listing – and how much ardour western investors have for one rising Asian sovereign giant, but not always the other. 

This is a tale of two listings: one from China, the other from India

On the one hand, there is ZTO Express, the leading player in China’s fast-growing express delivery service. As Euromoney went to press, the Shanghai-based firm was on track to complete what could be the largest US stock offering this year, raising as much as $1.5 billion. ZTO was set to sell 72.1 million American depositary shares at between $16.50-$18.50 a share, with its debut on the New York Stock Exchange (NYSE) set for October 27.


ZTO has done little wrong throughout the listing process, or indeed since it was founded in 2002. Its founder Lai Meisong, a high-school dropout, is a classic hands-on chairman, devoted to keeping costs down and profits high. He built solid corporate foundations based on an innovative model, which involves ZTO owning its own sorting hubs but franchising out delivery services, before raising pre-listing capital from investors including Warburg Pincus and Hong Kong-based Hillhouse Capital. 

Having decided to list shares in the US, Lai chose Goldman Sachs and Morgan Stanley to underwrite the sale. 

ZTO could, says one banker involved in selling the deal to investors, have raised far more by pursuing a backdoor listing on home soil: smaller rival STO Express completed a $2.6 billion reverse takeover of a Shenzhen-listed firm in December 2015, a simple way of securing a stock code in mainland China. 

But New York made more sense, the banker adds, for many reasons. A listing allows its new shareholders to cash out easily, and for the firm’s founder to retain control of his baby and siphon some of his fortune into a safe, developed market. Much of the fresh capital will be ploughed into new warehouses and long-haul trucks, which will allow Lai to stay ahead of the game. 

ZTO delivered 3.7 billion parcels in 2015, according to data from iResearch, out of an industry total of 21 billion. But it is engaged in a fierce fight to dominate the world’s largest delivery market, whose growth is being driven by rising wealth, urbanization and the need to package and distribute millions of simple items on a daily basis, many bought via websites such as 

Indeed, ZTO’s success, as a company and as a listing prospect, has benefited from what the ECM banker calls the “Alibaba effect”. The online giant, headquartered in Hangzhou, completed the world’s largest ever IPO in New York in September 2014, raising $25 billion. Its stock is up 71% since early February and is closing in on record highs. “Alibaba’s and ZTO’s stories are connected,” the banker says. “Consumption is rising in China; e-commerce is rising; delivery volumes are rising. It’s all inter-related. Investors get that.” 

There is still time for hiccups – even Alibaba’s shares had a rocky start to listed life. But ZTO’s roadshow in mid-October, which took in six cities on two continents in 10 days, including Hong Kong, New York and San Francisco, showed the firm was leaving little to chance. “We had no problem covering the books, and there was standing room only at the roadshow meetings,” the banker says. “That’s never a bad sign.”

Love-hate story

US investors have not always been nailed-on fans of Chinese corporates, some of which have struggled with the demands of more activist US funds. But if the story is often of the love-hate variety, with sentiment swinging between the two (and lately toward the former), the same cannot be said, if Azure Power Global’s disastrous October IPO is anything to go by, of Indian firms looking to sell shares in New York.

The New Delhi-based solar power producer garnered some attention when it decided to become the first Indian firm in four years to pursue a primary US listing. Azure had solid foreign backing: major investors included European development lenders KfW and Proparco, and International Finance Corp. But its stock sale was a mess. Joint bookrunners Barclays and Credit Suisse originally hoped to sell 6.8 million shares, with an original range set at between $21 to $23 a share, raising up to $156 million. 

Then things got complicated. When CPDQ Infrastructure Asia, a division of Canadian institutional investor Caisse de dépôt et placement du Québec, offered to invest $75 million in a concurrent private placement at $22 a share, the firm jumped at the chance. But that slashed the size of the public offering to just $61.2 million, comprising 3.4 million shares at $18 apiece. 

Even then the pain wasn’t complete. Azure’s stock tumbled 18.9% on debut, opening at $16.12 and closing at $14.6. The following day it fell again, before recovering limply to round out a horrible week. 


Casting around for excuses – and there are many, from global economic woes to the troubled nature of the solar market – bookrunners pointed the finger at the private placement. 

“We could have done a $150 million sale easily,” says Pramod Kumar, head of advisory at Barclays in India, who led the underwriting for the UK bank. “We had great investor interaction, they liked the management and the business model. But as soon as CPDQ came in and the allocations were slashed, a lot of the same investors said: ‘We can’t do something this small’. Size is the one thing I would do differently next time.” 

Many wonder whether there will be a next time, at least in the near-term. Indian companies, barring a few standout corporates such as IT firm Wipro and lender ICICI Bank, historically prefer to list at home, where investors and rules are a known quantity

That travel sickness in turn makes it harder for Indian firms keen to raise capital overseas and take on the world, as many are keen to do, and to make their case to US-based and focused investors. 

“China has done a far better job than India in marketing itself and its companies to US investors,” says Barclays’ Kumar. “There have been hardly any issuances out of India, and there are few if any on the horizon. That needs to change.”

By any measure, Azure Power’s horror show will not have helped the cause. 

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