HONG KONG - A parade of Chinese bubble tea makers are lining up for first-time share sales in Hong Kong and the United States, where they are likely to get less regulatory scrutiny than at home.

At least six companies selling the popular beverage are separately weighing overseas initial public offerings (IPOs), according to people familiar with the matter.

They range from Mixue Bingcheng, China’s biggest bubble tea chain, to Zhejiang-based XSQ Tea on the smaller end with 1,600 stores.

Chinese regulators earlier in 2023 issued guidelines discouraging certain types of companies from listing in the domestic A share market, and, in the cases of liquor and tuition companies, banned listings outright.

Using so-called window guidance, regulators discreetly advised that companies that rely on explosive franchise business models also cannot list locally, according to a person briefed on the matter.

Food and beverage chains were reportedly among companies banned from listing in China’s main exchanges, according to Mr Shen Meng, a director with Beijing-based investment bank Chanson & Co, “especially projects that are burning money in order to surge in scale”.

“Unfortunately, almost all bubble tea makers adopt this business model,” he added. “Almost all bubble tea makers are in the red, so it becomes hard for them to meet standards of an IPO in the A share market.”

Instead of pursuing IPOs on the mainland, bankers have been rushing to pitch bubble tea companies to list overseas.

The bull case is that a wave of fresh Chinese consumer spending is on its way now that Covid-19 restrictions have finally been lifted, though evidence of a rebound has so far been lacking.

Nayuki Holdings, a Chinese bubble tea chain that went public in Hong Kong two years ago, has seen its stock tumble about 70 per cent from its IPO price.

Mixue leads the pack of IPO aspirants with 25,000 locations in China and 3,000 overseas, according to its website.

The company, which also sells ice cream sundaes, considered a Hong Kong listing as early as 2021.

In 2022, it filed for a US$918 million (S$1.2 billion) Shenzhen IPO which has since been put on hold, according to people familiar with the matter.

Numerous bankers have pitched Mixue recently for a Hong Kong listing now that the door to Shenzhen seems to have shut, but the company has yet to make a final decision, said the sources.

GF Securities, the sponsor for its A share plan, is likely to get a role on the listing if Mixue decides to try Hong Kong, the sources added.

Aside from Mixue, the other companies are likely to raise less than US$500 million each, the sources said.

Global IPO volume is so far well short of the glory days of 2021.

In Hong Kong, the biggest listing in 2023 to date was Chinese white liquor maker ZJLD Group, which raised US$676 million in April.

Fruit tea chain ChaBaiDao has tapped China International Capital to work on its revived Hong Kong listing that could happen as early as 2024, the sources said.

The Chengdu-based beverage retailer has opened more than 6,000 stores in over 250 Chinese cities, and raked in almost 36 billion yuan (S$6.7 billion) in annual revenue, according to its website.

GoodMe, known as Gu Ming, could raise about US$300 million in a Hong Kong offering as soon as 2024, the people said.

XSQ Tea, which sells fried chicken as well as fruit tea, has also been meeting potential advisers recently to draw up plans for a Hong Kong listing, the people said.

Two of the bubble tea brands are exploring possible listings in the United States, though fewer Chinese companies have headed in that direction since the crackdown following Didi Global’s ill-fated listing in 2021.

One company weighing a US IPO and working with potential advisers is Sichuan Chagee Enterprise Management, the sources said.

Doing business under the name Chagee, which refers to a 2,000-year-old love story about a Chinese warlord, the company now has more than 1,860 stores, including more than 70 in Malaysia, Thailand and Singapore, its website shows.

Even overseas, bubble tea makers may face hurdles convincing investors that their growth story is genuine, according to Natixis.

“Chinese food and beverage chains usually rely on quick expansion to achieve a large market share and pitch the story to investors as the exit strategy,” said Mr Gary Ng, senior economist for Natixis in Hong Kong. “It also means that the corporate health of these firms may not be very sound with leverage, and the chains are usually highly replaceable if there are new, good competitors.” BLOOMBERG