IPO is new goal

Is China’s top football team worth Rmb10 billion?

Guangzhou Evergrande Taobao play against Beijing Guoan during a soccer match, in Guangzhou, Guangdong province

High five: Evergrande is seeking its fifth consecutive league title

Investing in sports teams is not always a smart idea, even when the team is a serial winner on the pitch. Manchester United first listed in June 1991. Seeking to raise £10 million ($15.5 million), the English football club went public on the London Stock Exchange at £8.33 a share.

At the time its last league title victory was 25 years earlier. By 2004, having been crowned English champions eight times, the club was taken private by American tycoon Malcolm Glazer at only £3 a share. “If you were sticking around since the 1991 IPO, your shares would have declined in value by nearly 64%,” Forbes magazine concluded in 2012 as it advised against buying into Manchester United’s New York IPO. “Publicly traded professional sports teams rarely outperform the market.”

As matters stands, Manchester United’s value has climbed 28% to $3 billion since its second flotation. This might be an encouraging sign for Chinese investors contemplating a punt on their own country’s most successful football club.

Last June the e-commerce giant Alibaba agreed to invest Rmb1.2 billion ($192 million) for a 50% stake in Guangzhou Evergrande, a football club owned by a property developer with the same name. Football pundits have been predicting something special, given the deal has brought together two of the nation’s richest tycoons – Alibaba’s Jack Ma and Xu Jiayin of Evergrande. But few would have envisioned that the combination might result in the first football club IPO in Asia.

Evergrande said in a regulatory statement in Hong Kong last week that its football unit is applying for a domestic listing. Of course, much has changed since that announcement – not least the market tanking and all pending IPOs being put on hold. That means the timing of the listing will likely be delayed.

Even before the current turmoil, the property firm had given no indicated size for the planned listing, but Chinese media put a Rmb10 billion price tag on the club. Still, with the stock market ‘correction’, that now looks toppish (plus it’s already 400% higher than the valuation set by Alibaba’s investment 12 months ago). It is also more than half of Manchester United’s market capitalisation.

Now officially known as Evergrande Taobao, the team has won four consecutive league titles. It was also the first Chinese team to win the Asian Champions League in 2013.

However, according to Evergrande Taobao’s preliminary prospectus, the club made a loss of Rmb576 million in 2013, and another Rmb482 million loss last year.

As of the end of May Evergrande Taobao’s net asset value was Rmb998 million, (although more than Rmb700 million of that is accounted for by the very intangible transfer value of its players). If it eventually does list and achieves a Rmb10 billion valuation, that would see the IPO priced at a hefty 10 times book value. In comparison Manchester United is trading at roughly four times.

The 21CN Business Herald noted that Evergrande is also planning to spin-off other units. “Xu Jiayin has talked about plans to list its bottle water, food and dairy units in the coming three years… there could be more than 10 Evergrande listed firms in the future if these all go to plan,” 21CN said. “Evergrande is a huge brand… there is ample room for imagination,” Shanghai Morning Post also suggested last week.

But for the time being, Evergrande Taobao is more focused on maintaining its performance on the pitch. After seeing World Cup winning coach Marcello Lippi retire in November, and sacking his successor Fabio Cannavaro last month, the Guangzhou club has replaced its Italian connection with a Brazilian revolution. Last month it hired Brazilian coach Luiz Felipe Scolari. And last week it confirmed the £9.9 million transfer of Brazilian midfielder Paulinho from English club Tottenham Hotspur. And Nanfang Daily also reports that Brazilian striker Robinho may also join the Chinese club for a record-breaking transfer fee and salary package.

These big-name additions are likely to bolster Evergrande Taobao’s appeal with its fans. But as a commercial entity, Nanfang Daily said the club’s profit and loss account may turn a lot uglier in the near future.

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