Weak markets force Alibaba-backed Babytree to cut size of HK IPO

By Julie Zhu and Julia Fioretti

HONG KONG, Nov 14 (Reuters) - Alibaba-backed online parenting firm Babytree Group launched a Hong Kong IPO of up to $281 million on Wednesday, far below what the Chinese company had hoped to raise, as weak markets force firms to scale back their funding ambitions.

Babytree plans to sell about 250 million shares, or 15 percent of its enlarged share capital, at a price range of HK$6.80-HK$8.80 ($0.8682-$1.12), giving it a potential valuation of up to $1.87 billion, according to two sources familiar with the deal.

That is below the company's $2 billion valuation in late May when e-commerce giant Alibaba invested $214 million in Babytree.

Babytree had originally aimed to raise $1 billion in its initial public offering, but falling markets forced the company to lower its target.

It is the latest firm to drastically scale back its funding ambitions in Hong Kong, although the financial hub remains on track to become the world's top IPO centre by volume.

The recent performance of IPOs has been poor, in part because of weak markets rattled by a China-U.S. trade war and concerns about slowing growth in the world's second largest economy.

Hong Kong's benchmark Hang Seng index is down 14 percent this year.

Alibaba exercised its anti-dilution right to buy shares in Babytree's IPO in order to keep its stake at 9.9 percent, according to one of the sources.

Online travel website Tongcheng-Elong has also cut back the size of its planned IPO while Tencent Music Entertainment, Tencent's music streaming arm, put its own IPO plans on hold after a steep market sell-off in October.

Babytree said in its prospectus that it is China's largest maternity and child-focused community platform with around 139 million monthly active users in 2017.

It had revenues of 407 million yuan ($58.56 million) in the first half of 2018, up 12 percent from the same period a year ago, according to its prospectus.

Its profit increased 37 percent to 123 million yuan in the first half of this year.

Babytree has hired China Merchants Securities, Haitong International and Morgan Stanley as joint sponsors for the IPO. ($1 = 7.8320 Hong Kong dollars) ($1 = 6.9498 Chinese yuan renminbi) (Reporting by Julie Zhu and Julia Fioretti; editing by Darren Schuettler)