MARKETS World’s biggest cigarette maker files for Hong Kong IPO

A subsidiary of China National Tobacco, a state monopoly that is by far the biggest cigarette maker in the world, has filed for an initial public offering on Hong Kong’s stock exchange.

The unit, China Tobacco International, mainly procures tobacco leaf from overseas countries such as Brazil, the United States and Canada for the cigarette giant to manufacture.

The company accounts for four of every 10 cigarettes made in the world.

The listing will raise about $100 million, according to Reuters.

The international segment accounts for a tiny slice of China Tobacco’s overall business, which has a bigger market share than the next five global tobacco companies combined.

Despite its relatively small size, the listing offers a rare opening up of the state monopoly that is facing growing domestic concerns over China’s high rates of cancer and smoking-related disease.

China National Tobacco sells 98 per cent of all tobacco consumed in China – the biggest tobacco consumer and manufacturer in the world. The company booked sales of 1.1 trillion yuan (Dh587.8 billion) in 2017, accounting for 7 to 11 per cent of the country’s tax revenue.

Critics say the Chinese government has not done enough to discourage smoking because of the tax revenue it gains from the industry.

Last year, regulators in China’s National People’s Congress called for higher taxes on cigarettes to deter smoking among the young.

The international business to be floated recorded revenue of HK$5.1 billion (Dh2.39bn) for the nine months ended in September, a 21 per cent drop from the same period last year, according to pre-listing documents. It had a gross profit margin of 5.8 per cent, down from 6.5 per cent a year earlier.

The unit derives revenue primarily from a fixed markup of 6 per cent it applies to the overseas tobacco leaf supply when selling to domestic cigarette manufacturers. It

The listing offers a rare opening up of the state monopoly facing concerns over China’s high rates of cancer

also has full control of cigarette exports – sold primarily in duty-free locations sich as Singapore and Thailand – and domestic-grown tobacco leaf from provinces including Yunnan and Sichuan. In May, it started a business exporting Chinese-made heat-not-burn tobacco devices, the document said.

In 2016, the industry contributed profit and tax of 1.1tn yuan, according to China Tobacco’s website.

CICC and China Merchants Securities are joint sponsors of the proposed IPO.