China Tea Chain ChaPanda Sinks in Hong Kong IPO as Market Sours

In a disappointing turn of events for Sichuan Baicha Baidao, better known as ChaPanda, the Chinese low-priced tea chain’s much-anticipated debut on the Hong Kong market took a nosedive on Tuesday. This setback not only cast a shadow on authorities’ aspirations to reinvigorate initial public offering (IPO) activity but also raised concerns about the viability of similar ventures eyeing public listings.

ChaPanda kicked off its market journey with shares opening at 15.74 Hong Kong dollars, a disheartening 10% below its IPO price of HK$17.50. The stock continued its downward trajectory, plunging nearly 40% in midday trading before closing at HK$12.80, marking a steep 27% drop.

Expressing bewilderment over the market sentiment, a senior banker involved in the ChaPanda listing remarked, “I am speechless; the market sentiment is so bad.”

Another newcomer to the market, Tianjin Construction Development Group, faced a similarly bleak start, opening trading at HK$1.88, a significant 25% below its IPO price of HK$2.50. The stock’s value further depreciated to HK$1.52 by the end of the trading day, marking a staggering 39% decline.

Despite the dismal performance, neither company opted for a media briefing post-listing, a customary practice for newly listed entities.

Attributing the decision to proceed with listings despite adverse market conditions to the substantial expenses already incurred, the banker pointed to the absence of cornerstone investors, citing their reluctance “to lock up their money.” When asked about navigating the prevailing sentiment, he urged resilience, stating, “Be strong.”

ChaPanda’s underwhelming debut comes at a time when several tea chains are lining up for listings on Hong Kong’s stock market, aiming to secure funds for expansion amid fierce competition in the home market. While ChaPanda managed to raise approximately HK$2.6 billion ($330 million), the lackluster start raises concerns for its peers eyeing public offerings in the near future.

In contrast to the subdued market conditions, Hong Kong Chief Executive John Lee expressed optimism about the local IPO market’s prospects following a policy initiative issued by the China Securities Regulatory Commission (CSRC). Lee highlighted the central government’s pledge to “support sector-leading mainland companies to go list in Hong Kong,” foreseeing a boost in IPO activity and liquidity.

Founded in Chengdu in 2008, ChaPanda has witnessed rapid growth in recent years, expanding its footprint to 8,016 stores across mainland China. The company, which primarily targets young consumers with affordable tea-based drinks, reported robust financials with full-year revenue reaching 5.7 billion yuan ($803 million) and net profit at 1.1 billion yuan.

ChaPanda plans to allocate over half of the IPO proceeds towards enhancing overall operations and bolstering supply chains. Unlike global coffee giant Starbucks, which operates directly, ChaPanda follows a franchise model, facilitating rapid expansion primarily through equipment and ingredient sales to franchisees.

However, the challenging market dynamics pose significant hurdles for Chinese tea chains eyeing global expansion amid fierce competition from local players and established brands like CoCo and GongCha.

While late to the global competition, Chinese tea chains bring substantial management expertise, expansion capabilities, and marketing prowess to the table, having weathered the intense domestic market competition.

In conclusion, ChaPanda’s underwhelming IPO performance underscores the challenges faced by Chinese tea chains amidst a tough market environment, raising doubts about the feasibility of future listings and expansion plans in both domestic and international markets.