Yahoo Finance

By Pei Li and Dong Cao

(Bloomberg) — A parade of Chinese bubble tea makers are lining up for first-time share sales in Hong Kong and the US, where they are likely to get less regulatory scrutiny than at home.

At least six companies slinging the popular beverage are separately weighing overseas initial public offerings, according to people familiar with the matter. They range from Mixue Bingcheng Co., China’s biggest bubble tea chain, to Zhejiang-based XSQ Tea on the smaller end with 1,600 stores.

Chinese regulators earlier this year issued guidelines discouraging certain types of companies from listing in the domestic A share market, and in the cases of liquor companies and tutoring firms, banned listings outright, Bloomberg News reported. Using so-called window guidance, regulators discreetly advised that companies that rely on explosive franchise business models also cannot list locally, according to a person briefed on the matter.

Food and beverage chains were reportedly among companies banned from listing in China’s main exchanges, according to Chanson & Co.’s Shen Meng, “especially projects that are burning money in order to surge in scale.”

“Unfortunately, almost all of bubble tea makers adopt this business model,” the director at the Beijing-based boutique investment bank added. “Almost all of bubble tea makers are in the red, so it becomes hard for them to meet standards of an IPO in the A share market.”

Instead of pursuing IPOs on the mainland, bankers have been rushing to pitch bubble tea companies to list overseas. The bull case is that a wave of fresh Chinese consumer spending is on its way now that Covid restrictions have finally lifted, though evidence of a rebound has so far been lacking.

Nayuki Holdings Ltd., a Chinese bubble tea chain that went public in Hong Kong two years ago, has seen its stock decline about 70% from its IPO price.

Mixue leads the pack of IPO aspirants with 25,000 locations in China and 3,000 overseas, according to its website. The company, which also sells ice cream sundaes, considered a Hong Kong listing as early as 2021, Bloomberg News reported. It filed last year for a US$918 million Shenzhen IPO which has since been put on hold, according to people familiar with the matter.

Numerous bankers have pitched Mixue recently for a Hong Kong listing now that the door to Shenzhen seemed to have shut, but the company has yet to make a final decision, said the people, who asked not to be identified as the information is private. GF Securities Co., the sponsor for its A share plan, is likely to get a role on the listing if Mixue decides to give Hong Kong a go, the people said.