SF Express Group plans a backdoor listing through a reverse takeover deal, a move analysts said aims to raise funds for urgently needed upgrading amid fierce competition in the maturing delivery sector.
Shenzhen-listed Maanshan Dingtai Rare Earth & New Materials Co on Monday announced that it will buy the Shenzhen-based express logistics company for 43.3 billion yuan ($6.6 billion), according to a stock filing.
Dingtai's overall assets were estimated at 800 million yuan in the filing.
The deal is to be completed through an asset swap and a share issue priced at 10.76 yuan, leading to a backdoor listing on the Shenzhen bourse for the express delivery company.
Going public has apparently become a trend in China's delivery sector. Shanghai YTO Express (Logistics) Co and STO Express, which are also based in Shanghai, announced backdoor listing plans for the A-share market in March 2016 and December 2015, respectively.
"This trend is driven by companies' need for money to support must-have transformation and upgrading moves" as a result of the slowdown in the express delivery sector, Shao Zhonglin, an industry analyst at Shanghai-based market consultancy yong-yiresearch.com, told the Global Times on Monday.
Revenues of China's express delivery companies rose 35.4 percent year-on-year in 2015 to 277 billion yuan. In comparison, growth in 2014 was 41.9 percent, showed data from the State Post Bureau, the country's regulator for postal and delivery services.
Companies not only can raise money with listings, they can also improve their management and infrastructure in the process, said Shao. Such moves are in line with a State Council directive issued in October 2015 that urged delivery companies to enhance their global competitiveness by improving their management and upgrading their infrastructure.
SF isn't the first company in the sector to pursue a backdoor listing, but its valuation is the highest so far among delivery companies.
Shanghai-listed garment manufacturer Dalian Dayang Trands Co plans to buy YTO, which is backed by Alibaba Group Holding, for 17.5 billion yuan.
Further, STO wrapped up a 16.9 billion yuan reverse takeover with valve producer Zhejiang IDC Fluid Control Co.
"The higher valuation for SF is understandable, as the company appears to be more profitable by targeting high-end consumers around the world," said Shao.
As of December 31, 2015, SF owned 30 cargo aircraft for express delivery services to customers in overseas markets including the US, Japan and Singapore, according to information on the company's website.
In 2015, SF reported 1.62 billion yuan in net profit, up 76 percent year-on-year, read Dingtai's filing.
A backdoor listing is a feasible choice for companies that want to get listed as fast as possible, as the IPO waiting list is very long, said Shao.
According to a Reuters report on May 5, there were nearly 800 Chinese companies awaiting permission to hold IPOs.
But he warned that delivery companies need to prepare for increased debt burdens and the negative effects of integration with a company in another industry.
Dingtai, which was mainly developing new materials, recorded 25 million yuan in net profit in 2015, with liabilities reaching 177 million yuan, its filing showed. SF pledged to lift the combined net profit to more than 2.18 billion yuan in the current year and 2.8 billion yuan for 2017.
