PE-backed ZTO Express seeks up to $1.3b in US IPO

The company made its initial filing two weeks ago. A more recent document indicates the company will sell 72.1 million American Depository Shares (ADS) for $16.50-18.50 apiece. A further 10.82 million shares could be added to the offering through the overallotment option, which would take the overall size of the issue to $1.53 billion.

Warburg Pincus currently holds 6.1% stake in the business while Sequoia has 5.6%. They would be diluted to 1.5% and 1.4%, respectively, on completion of the IPO. Gopher China S.O. Project - which is ultimately controlled by Gopher Capital, with Sequoia providing advisory services - would drop from 1.6% to 0.4%. Gopher is the asset management division of Noah Holdings.

Warburg Pincus was the major participant to ZTO's $300 million Series A round of funding last year, contributing $175 million. Gopher invested $45 million at the same time, with Hillhouse Capital committing $50 million and Standard Chartered Private Equity putting in $30 million. Sequoia was an earlier investor in one of ZTO's onshore subsidiaries; it has held a board seat since 2013.

ZTO was founded in Shanghai in 2002 as a regional parcel delivery company. A logistics partner of The Alibaba Group, it has since expanded its footprint to cover 96% of China's cities with a range of services targeting the e-commerce and printing industries.

It claims the fastest growth rate among the five largest Chinese express delivery companies as of the end of 2015, with parcel volumes growing at a compound annual rate of 80.3% from 2011 to 2015. Parcel volumes for the six months to June totaled about 1.9 billion, representing a 58% year-on-year increase for the period. In terms of parcel volumes, the company had 14.3% market share in China's express delivery space, according to iResearch.

Revenue increased from RMB3.9 billion ($585 million) in 2014 to RMB6.1 billion in 2015. Operating profit reached RMB1.5 billion in 2015, up from RMB600.3 million the previous year, while net income climbed from RMB406 million to RMB1.3 billion over the same period.

China is believed to be the world's largest express delivery market, with a total parcel volume of 20.7 billion in 2015, or about 1.5 times that of the US. The domestic logistics sector is benefiting from a fast-growing e-commerce market, which is estimated to be worth $609 billion compared to $342 billion in the US. About 70% of Chinese parcels were delivered as a result of e-commerce purchases, compared to 50% in the US.

The IPO extends a string of recent planned liquidity events for Chinese logistics companies. This includes two reverse mergers in Shenzhen by SF Express and YTO Express.

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• Topics
• Greater China
• Support services
• Consumer
• IPO
• Warburg Pincus Asia
• Hillhouse Capital Management
• Sequoia Capital
• Standard Chartered Private Equity
• Noah Holdings
• Exit
• China