Chinese real estate agency KE Holdings braved stormy seas to go public in New York. Worsening Sino-US relations have seen American regulators demand more oversight over Chinese firms listed in the US (those that don’t comply might get delisted). A fearful set of companies have even chosen to quit US bourses and return to China’s A-share market or Hong Kong instead.
Additionally, the real estate platform’s core business also had to handle the disruptions of the Covid-19 outbreak, only a few months prior to its share offering. But seemingly against all odds, its $2.1 billion IPO is the largest by a Chinese firm in the US for more than two years.
Following a 130% spike in share price since its trading debut two weeks ago, the company is now worth $52 billion (or Rmb360 billion) too. That means the real estate broker is more valuable than Vanke, China’s biggest property developer by sales, which has a market capitalisation of about Rmb309 billion.
Known as Beike in Chinese (or ‘seashell’), the company’s online business model is only two years-old, although its more traditional agency Lianjia, or Homelink, was founded in 2001. Combined, Beike is China’s biggest real estate firm with 42,000 outlets (including franchisees) and 456,000 agents. It brokered more than 2.2 million sales and rental deals last year, with gross transaction value of Rmb2.1 trillion. That kind of business supports its claim as China’s “second largest commerce platform” – just behind Alibaba’s Tmall.
Investors in the US have been buying into Beike’s investment case. However, the company’s (so far) successful IPO has been met with a fair share of scepticism back at home. Critics have focused on the company’s profitability, or lack thereof. Beike has been lossmaking over the last three years. Net losses were Rmb2.1 billion in 2019 and they could widen, following another Rmb1.2 billion loss in the first quarter of this year. CBN, a newspaper, blames higher commissions paid to agents and franchisees in a bid to boost sales levels prior to its IPO, as well as heavy investment in moving more of its operations online.
Others wonder about the fierce competition in China’s housing services market, which has few barriers to entry. Apart from long-time rivals of Lianjia, such as Centaline (a competitor from Hong Kong), internet heavyweights including Alibaba and Bytedance are also planning to offer similar services to those of Beike. Yao Jinbo, founder of rival platform 58.com (another US-listed firm but one which agreed to a $8.7 billion ‘take private’ deal in June), was one of the first to offer his thoughts about the debutant’s prospects.
“Congratulations on Beike’s listing,” he wrote on his WeChat account. “But speaking responsibly, we believe an open platform will eventually be bigger than a closed one.”
Yao was referring to 58.com’s different business model. Described as “the Craigslist of China” when it first went public in the US, its real estate arm is open to all property services intermediaries, which pay listing or advertising fees. In comparison, Beike operates an “agent cooperation network” that hosts 260 brokerage brands, supporting their businesses through its infrastructure, and sharing the commission income.
Beike filed for its IPO on July 24 and it took less than a month to go public, CBN reported. There was a sense of urgency because of an agreement signed with a group of financial investors (including Tencent) five years ago, the newspaper reckons. It stipulated that Beike had to go public by 2021 or return Rmb6.4 billion in loan principal, plus Rmb2.6 billion in interest.
Perhaps this helps to explain some of Beike’s determination to float its shares just weeks after US Treasury Secretary Steven Mnuchin reiterated that Chinese companies that fail to comply with American accounting standards will be delisted at the end of 2021.
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