The bottled water giant’s public offering has boosted its founder as one of three wealthiest people in China because of an ownership structure that reflects some potential risks of investing in Chinese companies. Nongfu Spring, which has the top spot in China’s market of packaged drinking water, reached approximately $1.1 billion in its first Hong Kong public offering last Tuesday, making it the largest IPOs for the stock exchange this 2020.
The company’s shares heightened to 85% from the offering price to open at 39.80 Hong Kong dollars or $5.14, before closing an estimated 53.9% higher at 33.10 Hong Kong dollars or $4.27. This stock traded higher by about 2.5% on Wednesday.
Founder Zhong Shanshan increased his wealth as reported on paper since he had 84.4% ownership of Nongfu Spring. Last Tuesday, data from Forbes showed that Zhong had a total net worth of $59 billion, basing it on a price of 39.20 Hong Kong dollars per share, including his other holdings.
With this ranking, Zhong is named the richest man in China, topping the $57 billion net worth of Tencent’s Pony Ma and Alibaba founder Jack Ma’s $51 billion, based on Forbes’s analysis. According to Wind Information, Zhong is to be the third richest man in China ahead of the IPO. However, the other side to Zhong’s great wealth is that public holdings of Nongfu are responsible for less than 4%, based on the company’s prospectus.
“Because of the high concentration of shareholding in a small number of Shareholders, shareholders and prospective investors should be aware that the price of the Shares could move substantially even with a small number of shares traded, and should exercise extreme caution when dealing in the Shares.”Nongfu Spring
Generally, low percentages of publicly offered shares and increased founder ownership levels are typical for Chinese companies.
Some people believe that having a more diverse ownership structure can help protect against fraud, although it is not entirely guaranteed.
“The influential shareholder could have so much control over the company, the internal or external auditing mechanism may not work as well as if there (was) a diverse shareholder base… There could be some financial irregularities coming out of such ownership.”Zhu Ning, professor of finance at Tsinghua University
The difference between Chinese and U.S. financial markets is the regulation, wherein punishment in China for securities law violation is relatively less severe than in the U.S., Zhu added.