Skift Take

Business trumps geopolitical tension: Chinese companies like Atour can bring in more cash to expand back home by listing on the U.S. stock market rather than in China.

Shanghai-based hotel company Atour might be working towards a massive debut on the New York Stock Exchange, but that doesn’t signal immediate plans for American expansion.

Atour, which owns brands like ZHotel and A.T.House and has leveraged China’s exploding middle class, plans to raise as much as $300 million as part of plans to go public on the U.S. stock market, CNBC reported this week. Its initial public offering could value the company at as much as $2 billion.

The mid-sized Atour would join Chinese hotel giant Huazhu on the American stock market. While analysts see many reasons for Chinese hotel companies to list in the U.S. over their home country, rapid expansion in the U.S. isn’t one of them.

“China still has plenty of growth opportunities for its domestic hotel companies,” said Nicolas Graf, associate dean at New York University’s Jonathan M. Tisch Center of Hospitality.

Double-digit growth is still possible in China, so there is less of a need to look abroad for returns — especially with so many other companies looking to get into the market. The CEOs of Hilton, IHG, and Marriott all pointed to China as a key source of future growth during first quarter earnings calls over the last two weeks.

U.S. hotel growth is still possible down the line, but Atour’s potential IPO likely has more to do with ease of access.

It’s easier to list on the New York Stock Exchange than the Chinese market, Graf added while pointing to billionaire investor Jack Ma’s failed IPO for his financial technology firm Ant Group. Regulators pulled the IPO days before it was supposed to begin trading in Hong Kong and Shanghai last year.

Despite swelling geopolitical tensions between the U.S. and China, listing in the U.S. gives an easier exit for international investors who may have initially backed Atour, Graf said.

“When you read the news, it may seem like a wrong moment for a Chinese company to list their stock in the U.S. The risks, especially for a hotel company not so much in high tech, are offset by how much easier it is to list in the U.S. than it is in China,” he added. “Regulators in China are really a lot more restrictive on listings.”

Atour currently has more than 600 hotels across more than 170 Chinese cities, according to its website. The company has a more than 900-hotel development pipeline for its brands across a variety of price points.

“Listing in the U.S., one of the largest and most liquid capital markets, provides [Atour] with the necessary capital to expand [back in China],” said Peng Liu, a professor from Cornell University’s School of Hotel Administration.

Atour did not respond to Skift’s request for comment, but the company’s website points to China’s “new middle class” as a driver for many of its brands. This is a rapidly growing revenue generator for hotel operators in the region.

More than 90 percent of the world’s middle-class population was found in Europe and North America in the 1950s, when Marriott opened its first hotel in Northern Virginia. Today, more than 20 percent of the global middle-class population is in China, according to the Brookings Institute. The think tank estimates 1.2 billion people in China will be in the middle class by 2027.

“The Chinese tourist market is underserved,” Liu said.

U.S. consumers already have so much brand familiarity with the likes of Marriott, Hilton, and Hyatt that it is going to be difficult for a company like Atour to enter that market, Liu added.

But the string of development partner deals many of these companies have all signed in China points to where the world’s hotel building boom will likely center during the travel recovery. Hilton has a development agreement with property developer Country Garden to build more than 1,000 Home 2 Suites properties across the country.

“Ever since they decided to rebalance the domestic economy towards more internal consumption, domestic tourism has grown tremendously and given more opportunities for the domestic brands to grow,” Graf said. “I don’t see the Chinese firms growing internationally in the very short-term. I think it’s going to take a few more years of them building inside and getting more comfortable [about] investing abroad.”

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Tags: china, coronavirus, coronavirus recovery, Huazhu

Photo credit: Chinese hotel company Atour reportedly plans to go public in a deal that could value the company at $2 billion on the New York Stock Exchange. Shihu7 / Wikimedia

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