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Making the Best of an IPO

HANGZHOU, China: June 26, 2017. Best Inc., a logistics company backed by the Alibaba Group, has applied for a listing on the New York Stock Exchange and Nasdaq to raise US$750 million in an initial public offering of American Depository Shares.

Citigroup, Credit Suisse, Goldman Sachs, J.P. Morgan and Deutsche Bank are underwriting the offer.

BEST IPOIn a filing with the U.S. Securities & Exchange Commission (SEC), Best says the emergence of 'New Retail' and the continued growth of e-commerce had presented "vast market opportunities" driven by China's transition to a consumer-led economy, the rise of the country's middle class, and growing disposable income.

The company estimates China's e-commerce market, including B2B and online shopping, will grow from US$2.8 trillion in 2016 to US$5.8 trillion in 2021 at a CAGR of 15.4 percent.

Citing iResearch data, Best says more and more companies in "the world's largest logistics market" are expected to outsource their supply chain needs to third parties. As a result, China's third-party logistics market is expected to double in size from US$176 billion in 2016 to US$366 billion by 2021.

Best Inc. is incorporated in the Cayman Islands and controlled via a Variable Investment Entity (VIE) in China by two PRC individuals, Wei Chen and Lili He - relatives of Best founder, chairman and CEO Shao-Ning Johnny Chou - who together with Hangzhou Ali Venture Capital, an Alibaba subsidiary, hold 36.3 percent, 36.3 percent and 27.4 percent respectively of the company via the VIE.

Shao-Ning Johnny Chou launched Best in 2007 using smart technology to combine supply chain management, express delivery, freight, merchandise sourcing, cross-border supply chain, last-mile, financial and value-added services (see flow chart).

For Q1 2017, Best reported revenue of US$471.9 million from its supply chain management, express, freight and online store divisions and a net loss of US$61.4 million.

The company's filing with the SEC warns: "We have a history of net losses and negative cash flows from operating activities, which may continue in the future."

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