China Consumer

In need of a boost

Flagging energy drink maker Jianlibao revives two-decades-old IPO plan

Jianlibao-can-w

One of the more poignant scenes in Zhang Yimou’s Not One Less, a movie that depicts rural poverty in 1990s China, is a portrayal of 26 children sharing two cans of Coca-Cola between them. But for Li Jingwei, founder of energy drink company Jianlibao, the more heart-rending part of the scene might well be the way the kids shunned his own product: an orange, honey-flavoured drink that was once the nation’s pride (see WiC129).

Zhang’s movie was screened 15 years after Jianlibao first made a name for itself at the Los Angeles Olympics in 1984. The team representing the People’s Republic of China won 15 gold medals at that Olympiad – its first appearance in the competition. And as the designated drink for its athletes, Jianlibao, meaning “the fount of health and strength”, became a haloed brand and a huge commercial success in China.

The good times lasted till the mid-1990s, when the company went into a downward spiral of setbacks and scandals, including changing hands five times between the state, new investors, its own management team and a Taiwanese rival.

So news that Jianlibao is trying to go public on the Shanghai bourse was met more with scepticism than excitement by many commentators. On June 11, local media reported that its biggest shareholder Citic Group was preparing to IPO the fallen angel on the A-share market. The state-owned conglomerate bought the trading arm of Jianlibao from Taiwan’s Uni-President for Rmb950 million ($146.8 million) in December 2016. It had also owned the majority stake of Jianlibao’s Guangzhou-based parent as a pledged asset since January last year, opening the way for a flotation designed to rebuild confidence in Jianlibao among its distributors and management, said food industry analyst Zhu Danpeng.

Jianlibao was China’s only energy drink in the 1980s and also the first local beverage to be packaged in cans, according to Southern Weekly.

Despite solid growth in China’s energy drink market, Jianlibao’s sales have fallen substantially from Rmb5.4 billion in its heyday in 1997, reports local media China Times. Squeezing its share to less than 1% today are Red Bull, Eastroc, Fujian Dali’s Hi-Tiger and Wahaha, which Euromonitor’s 2017 data says each commanded 71.1%, 11.2%, 10.7%, and 0.7% respectively of the energy drink market. In fact, Jianlibao is unseen in most of the major supermarkets and convenience stores across tier-one cities like Beijing, Economic Observer reports.

“Jianlibao’s downfall has its roots in issues that are more complex than meets the eye,” Zhu told Guangzhou-based Time Weekly.

Its ownership structure was a particular problem because it made the company more susceptible to radical personnel changes and subsequent management malaise. Before 2002, Jianlibao was 75%-owned by the municipal government of Sanshui, which was part of the city of Foshan in Guangdong province. Although Li Jingwei had founded the compan, he did not own a controlling stake. And his success created enemies in Sanshui, where many of the local officials dismissed him as headstrong and irreverent – even though his creation contributed nearly half of the local government’s tax revenues at its peak.

The rancorous relationship between Li and the local government doomed Jianlibao’s early privatisation efforts, despite the wave of guotuiminjin (‘the state retreats, the private sector advances’) led at that time by then premier Zhu Rongji in the 1990s. In 1997 the Sanshui government rejected Li’s proposal to float Jianlibao on the Hong Kong bourse, citing “ineligibility to buy H-shares without Hong Kong residency”. Two years later, it rejected Li’s Rmb450 million management buyout, preferring to step up its oversight of Jianlibao’s finances instead.

New levels of bureaucracy held Jianlibao back from competing more effectively against its privately-owned peers and in 2002 Li tried again to buy the company outright.

But the Sanshui government refused, selling a 75% stake to a company controlled by a 28 year-old qigong master-turned-financier called Zhang Hai, for Rmb338 million.

Nine days after the firm was sold Li was hospitalised with a cerebral haemorrhage. Later in the year, he was sued for misappropriation of state assets (Sina.com reports that his crime, according to the local court, was using funds from Jianlibao to buy insurance policies for senior and middle management). The court suspended the trial due to Li’s poor health and he remained in hospital until he was eventually sentenced to 15 years in prison in November 2011. He died in April 2013 aged 74.

It was under Zhang Hai’s leadership that Jianlibao became financially unviable, having trouble paying suppliers and staff. Between 2002 and 2004 its total debts snowballed to Rmb4.1 billion from Rmb2.5 billion as Zhang used Jianlibao as a financing vehicle, ploughing money into football clubs, banks, a winery and an electrical appliance maker. He was later charged with accounting fraud and embezzlement.

During his time as boss Li had realised how the struggle for management control of Jianlibao was hamstringing the company’s development.

For instance he’d earlier supported the spin-off of the firm’s sportswear unit four years after it was created in 1990 to the man who ran it: China’s “Prince of Gymnastics” Li Ning. The eponymous sporting goods company, which went public in Hong Kong in 2004, is now the second largest of its kind in China, worth HK$19 billion ($2.4 billion).

An IPO might now help Jianlibao to make more of a comeback, although its shareholders will probably need to be patient. “It might take a while before Jianlibao can go public,” Shen Meng, managing director at Xiang Song Capital, told state-owned International Finance News. “After all, it does not belong to the new economy industries. Its application is unlikely to be fast-tracked.”

But even if Jianlibao gets the approval for a listing, is it a good bet for investors? Because of the fierce competition in the energy drink business, it has been trying to broaden its offering and it now sells products across nine different lines, including sports drinks, fruit juices, mineral water and snack foods.

Some analysts question whether this more diversified approach is going to work, however, especially as its brand name is no longer as respected. After all, Jianlibao’s days as a golden contender after the Los Angeles Olympics were more than 30 years ago. And today it is often competing for customers in second and third-tier cities, rather than the top-ranked urban markets.


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