HK tea cafe eyes $81m in landmark IPO

It was the first to drizzle condensed milk on toasted buns. It also found a way to serve dong nai cha, or iced milk tea, without using ice cubes - by placing it in a bowl of ice instead.

Now, fans of Hong Kong's most popular cha chan teng, or tea cafe, can own a slice of the company at HK$2.08 (about 27 US cents) per share.

In typical pioneering spirit, Tsui Wah is the first among its peers to go for an initial public offering (IPO). Yesterday, its chairman Lee Yuen Hong told a press conference that it wants to raise HK$631.1 million (US$81.4 million) to fuel its expansion into China.

In the next three years, it plans to open 22 outlets on the mainland and 11 more here, on top of its current 26 outlets.

Lee appealed to local investors, saying: "Cha chan tengs are an important part of Hong Kongculture. An IPO will help us keep the spirit going, and it reflects ourcommitment to our consumers and supporters."

While a relatively small offering, the Tsui Wah deal, along with a few others in the pipeline, is a bright spot for Hong Kong, which saw an IPO drought this year.

The city will slide from its position as the world's top IPO venue over the past three years to fourth or fifth place this year, said Edmond Chan, a partner at PwC's capital market services group.

"Up to end-October, the funds raised were about $6.4 billion, and if you add it all up, including the rest of year, maybe we can hit $10 billion," he said. This is a far cry from the $35 billion raised last year.

So far, rival exchanges such as Nasdaq, New York, Shenzhen, Japan and London have pulled ahead, with top-performer Nasdaq raising $21 billion to date.

Factors such as anxiety over the euro zone crisis are dampening sentiments everywhere. But the United States market is reaping the benefits of overdue deals that came through this year, as well as mega-deals like Facebook, Chan said.

Meanwhile, mainland companies, a mainstay of the Hong Kong IPO market, could also be delaying plans to go public, as they are worried that earnings may be affected by the slowing Chinese economy, he added.

But Tsui Wah, which started as a lone cafe in gritty Mongkok in 1967, remains undaunted.

Its offering is undergirded by confidence that the iconic cha chan tengs, which have been around since the 1950s, will continue to grow in appeal. They are beloved here; a legislator's call in 2007 for them to be enshrined as Unesco cultural heritage garnered popular support.

A report by consulting firm Frost and Sullivan said that the value of the cha chan teng sector increased from HK$17.1 billion in 2007 to HK$22.7 billion last year, making up two-thirds of the casual dining market.

Tsui Wah has the largest market share, at 3.2 per cent, followed by Tai Hing with 67 outlets. Tai Hing did not respond to queries on whether it plans to go down the IPO path.

But it is China that holds the key to future growth. The same report notes that the sales value of the cha chan teng sector there grew from 9.1 billion yuan ($1.45 billion) to 24.8 billion yuan last year.

There are no comparable industry standards against which to benchmark Tsui Wah's potential performance.

But two Hong Kong Chinese fast-food companies - Fairwood and Cafe de Coral, which went public in 1986 and 1991 respectively - parlayed the initial capital gained into aggressive expansion on the mainland.