Big Chinese tobacco looks to go public in Hong Kong
- The international arm of China's gigantic state tobacco monopoly, China National Tobacco Corp., is planning on going public.
- China Tobacco International the global-facing division of China's one-stop big tobacco shop, filed documents Wednesday to launch an IPO in Hong Kong, according to reports from Reuters and Bloomberg.
The international branch of the China's giant tobacco monopoly plans to list on the Hong Kong stock exchange, Reuters reports.
The global arm of the China National Tobacco Corporation, produces barely a puff of the massive revenues derived from the state-run behemoth that enjoys a near-total monopoly on cigarette smoking in the world's most-populous country.
Any piece of the world's largest cigarette maker could be an attractive option for investors in a part of the world where smoking still looms large across social, geographic, and cultural strata.
However, while China Tobacco International also enjoys a monopoly on all tobacco exports out of China, the market is a lot smaller than it sounds. Sources quoted by Reuters said the potential IPO could raise about $100 million.
China Tobacco International says it plans to use the money raised to buy up brands and expand distribution channels into likely markets - that's Southeast Asia - through new campaigns.
CICC and China Merchants Securities are joint sponsors for the IPO, Reuters said.
Aside from a factory in Romania, CBI imports a lot of tobacco out of mainly Brazil and the US, but its monopoly running China's homemade cigarette exports is also its weakness.
The elegant taste
Chinese outbound travelers are famous for spending big on luxury foreign brands, while mainland China's traveling smokers prefer to stick with homegrown brands. But globally, that is a small market catering exclusively to Chinese tourists in duty-free outlets across Asia.
Outside of the mainland monopoly, Chinese cigarettes - super cheap as many are - do not have a global market.
According to the South China Morning Post, China National Tobacco's international business earned booked sales of HK$5.1 billion ($651 million) in the nine months ending in September 2018. That's more than 20% down on the previous period from a year earlier.
The difficulty for the ruling Communist Party when facing up to the significance of smoking in the world's most populous country is that, although it makes people ill over the long term, smoking yields somewhere between 7% and 11% of China's total tax revenue, according to Reuters.
According to the State Administration of Taxation, China collected taxes amounting to 12.6 trillion yuan (about $1.8 trillion) in 2017.
The division's listing comes at the same time Beijing seeks to reduce smoking, as concerns over its health risks, particularly high cancer rates, continue.
Despite this, smoking remains a fairly integral part of modern Chinese culture. Cigarettes are branded with magnificent adornments and are still exchanged when strangers meet, or given as elegant gifts on important occasions.
As reflected in this explainer of the role of branding in Chinese smoking culture from The China Daily:
"Chunghwa (Zhonghua), as a symbol of a high-end cigarette brand in China, has very high sales in China. It was on a short allowance until 1988. Anyone who carries a Chunghwa cigarette between his or her fingers is regarded as upper-class or a wealthy man or woman. Panda, another prestigious cigarette brand, is also scrambled by people who like smoking. People believe cigarettes establish one's social class. If you are holding a low-end cigarette, you are probably a nobody."
Then there is the generally low awareness of the consequent health risks associated with cigarette smoking that has minimized the casual efforts of authorities to reduce smoking rates.
But the government is as addicted to the tax revenue as China is to the product.
China National Tobacco is a giant, opaque, fantastically profitable state-run business in a country where there are more than 300 million smokers, nearly one-third of the world's total.
One in every three cigarettes worldwide is smoked in China.
According to the World Health Organization, tobacco is killing around one million people every year in China, which accounts for about one-in-six deaths worldwide.
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