China hotpot firm Haidilao tests investor appetite with $1 billion HK IPO

HONG KONG (Reuters) - Haidilao International Holding, one of China's most popular hotpot chains, is seeking to raise up to $963 million (739.24 million pounds) in its Hong Kong initial public offering to fund its international expansion into markets including the UK and Canada.

Zhou Zhaocheng, Haidilao's chief strategy officer, told a press conference in Hong Kong on Tuesday that the company plans to open roughly 200 new restaurants in 2018, between 15 and 20 of which would be outside China.

Haidilao already operates in Japan, South Korea, the United States, and Singapore, but Zhou said that it was also planning to tap new markets, in particular the UK, Australia, Canada and Malaysia.

The company, which mainly serves spicy Sichuan style hotpot and is popular for the free services and entertainment such as manicures and board games offered to waiting customers, is offering 424 million primary shares in a price range of HK$14.8 to HK$ 17.8 per share ($1.89-$2.27).

Haidilao plans to sell about 8 percent of its enlarged equity capital in the IPO, giving it a potential valuation of up to $12 billion. That is 85 percent of the $14.1 billion market valuation of Yum China Holdings Inc <YUMC.N>, China's biggest fast-food chain.

Zhou said that in the new markets, Haidilao's first step would be to target those countries' large Chinese population, and look to grow from there. It would also launch localised menus to cater to different tastes.

The company could raise as much as $1.1 billion in total if a 15 percent “greenshoe”, or over-allotment option, is exercised after the shares begin trading.

Haidilao's IPO will test not just investor demand for a Chinese food brand that is growing both domestically and internationally but also the appetite for Hong Kong shares in general amid a nearly 12 percent drop in the market <.HSI> this year and as several other IPOs wait in the wings.

Haidilao, whose name originates from a mahjong term in Sichuan province which literally means fortune, expects to mainly use the funds raised from the IPO to finance its future expansion and develop and implement new technology in a bid to better control food safety after setbacks suffered since last year.

The hotpot chain managed to attract prominent firms, such as Chinese investment house Hillhouse Capital Group, as cornerstone investors who together committed to buy $375 million worth of shares in the IPO.

Hillhouse and Greenwoods Asset Management have committed $90 million each; Morgan Stanley <MS.N> and Snow Lake Capital $80 million each and Ward Ferry $35 million.

Co-founded by former tractor factory worker Zhang Yong in 1994, Haidilao has grown into China's leading hotpot chain with more than 300 restaurants across the country, and has already entered overseas markets.

The company is widely known for its focus on attentive and creative customer services, a rare emphasis point for many Chinese catering firms targeting the mass market. That also helped Haidilao become a case study at the Harvard Business School in 2011.

The IPO is expected to price on Sept. 18, with the stock's trading debut set for Sept. 26.

An undercover news report by a Chinese newspaper exposed a food hygiene scandal at two of its Beijing restaurants last year. And one of its outlets in Singapore was suspended for two weeks earlier this year for violating hygiene standards, Singapore media reported.

The company acted swiftly after the hygiene issues cropped up by acknowledging them, and started to offer live streams from its kitchens in the Chinese capital.

CMB International and Goldman Sachs are the IPO's joint sponsors.

($1 = 7.8496 Hong Kong dollars)

(Reporting by Julia Fioretti and Julie Zhu; Additional reporting by Alun John; Editing by Muralikumar Anantharaman)