Huazhu'S Secondary Listing In Hong Kong Raised HK $8.6 Billion To Expand "Invigorating Blood"

The rumor that Huazhu group went to Hong Kong to be listed for the second time finally settled down.

On September 10, Huazhu group published a prospectus on the Hong Kong stock exchange, applying to list the company's shares on the main board of Hong Kong in accordance with chapter 19C of the Hong Kong listing rules. In response, 21st century economic reporter contacted the group and received a response that "due to the silence period, it is inconvenient to accept interviews.".

As a matter of fact, due to the cold valuation and the increasingly harsh US stock market environment, going to Hong Kong for secondary listing has become the choice of many China capital stocks. However, valuation is not the main factor in the secondary listing of Huazhu group in Hong Kong. According to the 21st century economic report reporter's calculation, in the first half of this year, the average dynamic P / E ratio of Huazhu group in the US stock market was 65.68 times, which was higher than that of Jinjiang Hotel and ShouLv hotel in the same period. Up to now, the total market value of Huazhu group has exceeded 13 billion US dollars (about 88.8 billion yuan).

Some industry insiders pointed out to the reporter of the 21st century economic report that if Huazhu group can complete the secondary listing in Hong Kong, it will have more flexible capital operation space, which is conducive to optimizing the equity structure and realizing financing and investment development.

In fact, the return to Hong Kong listed financing is valued by Huazhu group. The epidemic situation has entered the stage of normalized prevention and control, and the hotel industry has accelerated the integration. It has reiterated that if Huazhu group, which is deeply rooted in the Chinese market, wants to continue to achieve scale expansion, it is obviously inseparable from the support of funds.

In April 2020, Huazhu hotel group, Shanghai. Picture vision China

Up to HK $8.6 billion

After the announcement of the prospectus, Huazhu group's secondary listing in Hong Kong will be launched in full swing.

According to the IPO plan, the upper limit of the IPO price of Huazhu group in Hong Kong is HK $368, and it plans to issue about 20.42 million new shares. Among them, international placement and public offering accounted for 90% and 10% respectively, and the amount raised exceeded HK $7.5 billion. In addition, if the 15% over allotment is used, the maximum financing scale of Huazhu group will exceed HK $8.6 billion.

The plan further shows that from September 11 to 16, Huazhu group made a public offering and pricing, and was listed on September 22. This means that as soon as this month, Huazhu group will realize a second listing in Hong Kong.

Secondary listing refers to that a listed company has listed part of its outstanding shares in another unregistered stock exchange. In April 2018, the Hong Kong Stock Exchange amended the listing rules to allow eligible mainland enterprises to be listed twice in Hong Kong, and to allow biotechnology companies with the same share but different rights or unprofitable shares to be listed on the main board. In the view of the industry, the abundant capital and mature market mechanism of the Hong Kong stock market can increase the cash flow and disperse the risks for the secondary listed enterprises.

"The financing situation of secondary listing in Hong Kong depends on the ability of the enterprise itself and the situation of its industry." Zhao Huanyan, chief knowledge officer of Huamei consulting agency, told reporters of the 21st century economic report that this year's epidemic has brought a huge impact on the hotel industry, and practitioners have realized the importance of sinking the market. Huazhu group will seize the opportunity to accelerate its expansion and deepen the market after it comes back to Hong Kong for financing.

So, how will the HK $8.6 billion raised be used?

Expansion, debt repayment, and technology investment are the main purposes of Huazhu group's financing in Hong Kong. The group said in its prospectus that about 40% of the funds will be used to support the company's capital expenditures and expenses to strengthen the company's hotel network, including the opening of new hotels and the upgrading and continuous maintenance of existing hotels; about 30% of the funds will be used to repay part of the $500 million revolving credit financing drawn by the company in December 2019; and about 20% of the funds will be used to enhance the company's technical level Taiwan, including the China Housing Society; about 10% of its funds will be used for general corporate purposes.

In fact, the valuation of Huazhu group in the US stock market is not low. At the initial stage of listing in the United States in 2010, the total market value of the group was about 28 billion yuan (the same below). Today, its total market value has increased several times to 88.8 billion yuan. Another data also shows that Huazhu group is very popular with US stock investors. In the first half of this year, the average dynamic P / E ratio of the company was 65.68 times, while the average dynamic P / E ratio of Jinjiang Hotel and capital hotel of a share were 25.10 times and 32.52 times respectively.

The 21st century economic reporter found that in recent years, the return tide of China capital stocks represented by high-quality new economy leading enterprises has added high-quality targets to the A-share and Hong Kong stock markets. A few months ago, when it came to Hong Kong for secondary listing, insiders of Huazhu group once told reporters of the 21st century economic report that, as a leading enterprise in the accommodation industry, if Huazhu group could return to Hong Kong shares, it would create convenient opportunities for mainland investors and help to release the value of Huazhu to the greatest extent.

According to the ownership structure, up to now, the major shareholders of Huazhu group are composed of Ji Qi, the founder of Huazhu group, Jingshun holdings, a foreign-funded institution, and Ctrip, a leading domestic OTA enterprise. The shareholding ratios are 33.53%, 12.11% and 7.42% respectively.

Sinking the third and fourth tier cities

Affected by the epidemic, the operation of the hotel industry has suffered a huge impact.

According to the media on September 10, Marriott International Hotel plans to lay off about 670 employees by the end of October, with the layoff rate of 17%. This is a microcosm of the plight of the hotel industry under the epidemic situation. The cost compression brought by layoffs can relieve the financial pressure of hotel groups. However, the risk of liquidity shortage brought by the shrinking performance has become the core problem that the hotel industry should face together.

In the first half of this year, the performance of Jinjiang Hotel, Huazhu group and ShouLv Hotel, the three major domestic hotel groups, suffered different degrees of decline. Financial data show that, without considering the non recurring profit and loss, Jinjiang hotel's net profit loss was 378 million yuan, down 205.68% compared with the same period last year; Huazhu group lost 2.135 billion yuan in the first quarter, and the net income in the second quarter was expected to drop by 30%; the first half of the year, the loss of capital hotel was 695 million yuan, and the net profit decreased by 289.07% year on year.

The negative impact of the epidemic on the "blood production" of the cash flow of hotel groups can be seen from the current public financial data, the net cash flow of operating activities of the three domestic hotel groups has turned negative since this year: the net cash flow of operating activities of Jinjiang Hotel and ShouLv hotel in the first half of this year are respectively - 1.359 billion yuan and - 252 million yuan; the operating activities of Huazhu group up to the first quarter of this year are respectively -1.359 billion yuan and - 252 million yuan The cash flow was -1.346 billion yuan.

For Huazhu group, it is urgent to ensure sufficient funds after the epidemic. On the one hand, the financial pressure brought about by the epidemic situation makes Huazhu group have to broaden its financing channels; on the other hand, the current expansion strategy of Huazhu group needs abundant financial support.

As of the first quarter of this year, the asset liability ratio of Huazhu group rose to 91.16%. Among them, the amount of short-term loans and long-term loans due in the current period is 5.8 billion yuan. At the end of the first quarter, the closing cash balance of Huazhu group was 3.475 billion yuan. The fund raising amount of HK $8.6 billion can greatly relieve the financial pressure of Huazhu group.

In response to the impact of the epidemic on the hotel industry, Huazhu group adjusted its organizational structure this year and announced that it would deeply cultivate the domestic market. The main measures of its "heavy warehouse" domestic market are to sink the third and fourth tier cities and implement the strategy of "thousands of cities and ten thousand stores".

According to the data, as of mid August, the opening rate of Huazhu group's hotels was 98%, and the one-day rental rate exceeded 90%. In fact, the 21st century economic reporter noticed that with the gradual recovery of the domestic tourism market, optimistic market expectations began to appear, and major hotel groups' heart of "horse racing to encircle the land" is rekindled. Huazhu group's brand with Hanting and full season as the main brand quickly opened the expansion rhythm.

"If Hanting used to provide accommodation for 300 million to 400 million people in the first and second tier cities, in the next three to five years, we will provide standardized, reliable and safe products for China's 800 million to 1 billion people, so as to realize the layout of more than 1000 cities." Jin Hui, President of Huazhu group and CEO of Huazhu China, told 21st century economic reporter on the 15th anniversary of the establishment of Hanting brand that in the next three to five years, Hanting brand of Huazhu group hopes to achieve the opening scale of 5000 stores and become the largest single hotel brand in the world.

Jinhui said that the domestic hotel industry is showing a slow recovery in the form of "√". The chain like rate of the domestic hotel industry is only 17%, with a huge space. Huazhu group is full of confidence in the domestic market and proposes to open more than 15000-20000 stores in China in the future.

The advantage of Dalian lock requires Huazhu to have a strong industry integration ability, and going back to Hong Kong for listing financing may become another starting point for the group to accelerate its expansion.

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