China Logistics Company ZTO Express Drops in Trading Debut

Shares of ZTO Express Inc. slid in their market debut, a disappointing turn after the Shanghai-based logistics company raised $1.4 billion in the largest U.S. initial public offering this year.

The stock opened at $18.40 and slid 9.2% to $17.70 in the first few minutes of trading. ZTO's offering had priced at $19.50 a share, ahead of its expected price range of $16.50 to $18.50. The company, which delivers parcels for businesses including Chinese e-commerce giants Alibaba Group Holding Ltd. and JD.com Inc., agreed to sell 72.1 million shares in the deal.

The offer, which could rise to $1.6 billion if an overallotment option is fully exercised, is in excess of the $1.3 billion raised by Japanese messaging-app operator Line Corp. in its New York and Tokyo IPO in July.

ZTO's offering is also the biggest IPO of a Chinese company in the U.S. since Alibaba raised $25 billion in New York in 2014. The shares are listed on the New York Stock Exchange.

Founded in 2009 by a veteran of China's logistics industry, ZTO operates a fleet of more than 3,300 trucks. Its main business is delivering parcels for Alibaba, which accounted for 75% of its business during the first half of this year. ZTO's backers include Hillhouse Capital Group and Warburg Pincus LLC.

Bankers on ZTO's IPO advertised the company's offering as a way for investors to cash in on China's burgeoning e-commerce industry. ZTO plans to use most of the money from the IPO to purchase land, build facilities and buy equipment to expand its sorting capacity. It intends to use the rest of the proceeds to acquire more trucks, invest in information technology and for potential strategic transactions.

China had $609 billion of online retail sales last year, almost double the $342 billion in the U.S., according to data from iResearch Consulting Group cited in ZTO's offering prospectus. That figure is expected to surge to $1.5 trillion by 2020, driven by China's emerging middle class and growing internet and mobile use among consumers, according to iResearch.

ZTO made an operating profit of 1.5 billion yuan ($223 million) in 2015, a 150% increase from 2014. Its operating-profit margin in 2015 was 25.1%, up from 15.4%.

The company has a 14.3% share of China's express-delivery market by parcel volume, compared with the 12.4%, 14.7% and 10.5% held by rivals Shanghai STO Express Co., Shanghai YTO Express (Logistics) Co. and Yunda Ltd., respectively, according to iResearch.

ZTO's decision to list in the U.S. is partly due to its reluctance to join the queue of more than 800 companies waiting for regulatory approval for IPOs in mainland China, according to a person familiar with the matter.

Morgan Stanley and Goldman Sachs Group Inc. were lead managers for the IPO. China Renaissance, Citigroup Inc., Credit Suisse Group AG and J.P. Morgan Chase & Co. also worked on the offering.

Write to Alec Macfarlane at [e-mail]

(END) Dow Jones Newswires

October 27, 2016 11:05 ET (15:05 GMT)

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