Trip.com, best known as Ctrip, is inviting brave funds to buy out China’s tourism dip. The country’s biggest online travel outfit is considering going private, Reuters reported. It has a clean balance sheet and no controlling shareholder, and premiums for delisting Chinese companies in New York have nearly halved to 22% from last year, according to Refinitiv data. It’s a tempting target as domestic travel revives, but funding a deal will be tricky.
U.S.-China relations and Covid-19 have conspired against $16 billion Ctrip, forcing it to consider winding down a 17-year run as a U.S-listed company. If successful, it would be the largest-ever take-private of a New York-traded Chinese firm. Nasdaq and fund managers are likely to miss it: it has delivered 17% total annualised returns since its debut, compared to 12% from the Nasdaq Composite index.
New York’s loss could be private equity’s gain. The pandemic paralysed tourism spending. Ctrip is expected to lose $359 million this year, according to an average of analyst forecasts polled by Refinitiv, and its shares have fallen 17% since January. Online travel agents have fallen out of favour with public market investors, too. They once looked like asset-light cash machines, but the outbreak has demonstrated that a surprising amount of working capital is involved in keeping them afloat.
Still, Beijing has done a relatively good job of containing Covid-19, and domestic passenger traffic recovered nearly 70% year-on-year in June, official data show. That’s good for Ctrip, but financing could still be tough. Strategic buyers like minority shareholder Booking could be interested, and a deal could be structured like a leveraged buyout, similar to Anta Sports Products' acquisition of Finland’s Amer Sports in 2018. Ctrip had $600 million of net cash at the end of March, giving interested parties the option of loading on debt to juice returns. But in this environment the bravest banks are likely to lend only 5 times the company’s EBITDA for any deal. Assuming a 22% premium will be enough for shareholders - the average paid for Chinese take-privates this year, according to Refinitiv estimates - an equity cheque of some $15 billion would still be needed. In a turbulent market, finding that kind of money won’t be easy.
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