CHINA
China National Tobacco Corp. (CNTC), the world’s largest tobacco producer by volume, filed for a Hong Kong initial public offering (IPO) for its overseas unit, China Tobacco International Inc. (CTI).
The listing is expected to raise around US$100 million for the unit, which is primarily responsible for procuring overseas tobacco leaf from countries like Brazil and Canada for CNTC, which churns out 4 of every 10 sticks made in the world. CTI derives revenue primarily from a fixed 6% markup it applies to the overseas tobacco leaf supply when selling to domestic cigarette manufacturers CTI also exclusively operates China’s cigarette exports business with sales in duty-free outlets in places such as Thailand and Singapore. In May, it started a business exporting Chinese-made heat-not-burn tobacco devices.
CTI recorded revenue of US$651 million for the nine months ended in September 2019, a 21% drop from the same period last year, according to pre-listing documents issued January 2, 2019. It had a gross profit margin of 5.8%, down from 6.5% a year earlier.
Some analysts say that while presenting a rare opportunity for investors, CTI’s IPO faces challenges including stricter tobacco regulations, the US-China trade war, a forecast slump in revenue, and a struggling Hong Kong stock market.