Yum China in Talks for Secondary Listing in Hong Kong

Financial advisors to be chosen Friday as the China restaurant behemoth joins an ever-growing list of Chinese U.S. stocks heading to the city.

Author: Belinda Zhou   

Shares in Yum China Holdings, Inc. (NYSE: YUMC) jumped 9% intraday Wednesday, as the fast-food restaurant is reportedly seeking a secondary listing in Hong Kong and has scheduled talks with banks this Friday.

Financial Times said the China restaurant behemoth has kicked off the run-up to an offering in Hong Kong and will invite investment banks to make their pitch to be advisers later this week, according to people with knowledge of Yum China's listing plan.

One person related to the plan said the offering size may be up to $2 billion. The $2 billion amount is in line with Bloomberg's report in January. Bloomberg also said that China International Capital Corp. and Goldman Sachs will secure the deal.

Yum China, which operates KFC, Pizza Hut, Taco Bell, and Mongolia's Little Sheep restaurants in China, has a market capitalization of $19.2 billion in New York. Spinning off from its U.S. parent company and going public in New York four years ago, the company expanded with 9,295 restaurants in China as of the end of March.

Yum China generated revenue of $1.75 billion in the first quarter, down 24% year-over-year. Its net income dropped over 72% to $62 million in the first quarter from $222 million in the prior-year period.

The temporary closures of its brick-and-mortar stores at the peak of the COVID-19 outbreak explains the plummet this Spring. The fast-food chain operator closed nearly 35% of its stores by mid-February and reopened 99% of them to full or partial capacity as of the end of April.

Apart from the COVID-19 outbreak, Sino-American tensions and the corresponding U.S. crackdown on Chinese public companies' lack of transparency, along with Hong Kong's relaxed listing rules, have spurred a rush of China-based U.S. listed companies to head to Hong Kong for a secondary listing.  

Hong Kong regulators have been taking steps to liberalize and modernize its market policies, allowing dually-listed companies with dual-class shares. Chinese tech giants Alibaba Group Holding Ltd.(NYSE: BABA; HKEX: 09988) completed its secondary listing in the city in November with a $12.9 billion float.

Other China titans following in Alibaba's footsteps include NetEase Inc. (Nasdaq: NTES; HKEX: 09999) which traded in Hong Kong last week and JD.com (Nasdaq: JD) which will launch trading in the Asian financial hub Thursday.

Shares in Yum China were trading at $51.4 per share, up 9% Wednesday morning.