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How a 'Lone Wolf' tycoon created 68 millionaires with his water empire

Based on the HK$21.50 ($2.77) pricing, Zhong's 84% post-IPO stake in Nongfu is valued at $26 billion, putting his net worth at $38 billion

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China | IPOs | China economy

Richard Macauley | Bloomberg 

How China's 'Lone Wolf' tycoon created 68 millionaires with his water empire
Nongfu Spring's Hong Kong initial public offering was oversubscribed by 323 times by the end of last week and priced at the top of its marketed range

He’s known as the “Lone Wolf.”

Zhong Shanshan has worked in construction, journalism, drug making and bottled water. Those last two endeavors have made him one of the world’s richest people, but he’s rarely quoted in the press, isn’t involved in politics and his business interests aren’t entwined with other rich families, such as the property tycoons. Hence the nickname.

That hasn’t hindered the popularity of Nongfu Spring Co., whose red-capped bottles are sold across everywhere from mom-and-pop snack stalls to high-end hotels. The company is proving just as popular to investors. Its Hong Kong initial public offering was oversubscribed by 323 times by the end of last week and priced at the top of its marketed range.

Based on the HK$21.50 ($2.77) pricing, Zhong’s 84 per cent post-IPO stake in Nongfu is valued at $26 billion, putting his net worth at $38 billion. That would make him China’s third-richest man, behind Alibaba Group Holding Ltd.’s Jack Ma and Tencent Holdings Ltd.’s Pony Ma, according to the Bloomberg Billionaires Index.

Zhong, 65, is sharing some of his success. The prospectus lists 68 shareholders in addition to Zhong, with stakes ranging from 0.0063 per cent to 1.4 per cent. Some got their ownership last year, when the founder and his holding company transferred 0.79 per cent of Nongfu to 33 people as part of a staff incentive program.

“Often, the founders will put together these structures to name shareholders ahead of an IPO, or they might offer grants to long-time employees to reward them for sticking around to build the business with them,” said Clifford Ng, a partner at Zhong Lun Law Firm in Hong Kong. “It’s a fairly common practice in China, and you see it more in family-owned businesses who have had long-term employees.”

The biggest beneficiaries are Zhong’s extended family. Lu Xiaowei, an elder sister of his wife, has a 1.4 per cent stake valued at $432 million, while two other of her siblings have holdings worth $428 million each. His sisters, Zhong Xiaoxiao and Zhong Xuanxuan, own $428 million and $214 million in Nongfu shares, respectively. Zhong’s wife and children aren’t listed as shareholders, though the IPO filing lists his son as a non-executive director.

Nongfu and Zhong didn’t respond to requests for comment.

Wealth Creation

The IPO market has long been an important source of wealth creation in China, but it has been turbocharged this year, even with the coronavirus pandemic. In the six months through June, at least 24 people became billionaires from new listings on Chinese exchanges. Last week saw another three members enter the three-comma club as on Shenzhen’s ChiNext tech board started trading with no limits.

The country is also seeing a boom in the merely rich. added 158,000 millionaires in just one year, taking the number to more than 4.4 million -- the most after the U.S., according to Credit Suisse Group AG’s 2019 wealth report.

This has been a transformative year for Zhong, who started in January with a fortune approaching $7 billion. In April, Beijing Wantai Biological Pharmacy Enterprise Co., a company he acquired a controlling stake in almost two decades ago, went public in Shanghai, catapulting his wealth to as much as $20 billion in early August as the stock surged by almost 3,200 per cent. It’s since pared gains, though it’s still up 24-fold since its listing.

For Zhong, who founded Nongfu’s predecessor in 1996, the rise to riches wasn’t obvious. His schooling was interrupted during China’s cultural revolution and he worked an assortment of jobs before finding bottled water.

His company launched its first packaged drinking water in 1997, sourced from the coastal Zhejiang province that borders Shanghai. It has since expanded to 10 sources across the country. Between 2012 and 2019, Nongfu claimed an industry-leading 21 per cent market share for packaged bottled water across Sales climbed to 24 billion yuan ($3.5 billion) last year, up 37 per cent from 2017.

Nongfu has also become a major producer of soft drinks, with about 40 per cent of its 2019 revenue coming from products including teas, flavored vitamin drinks and juices.

The shares will start trading in Hong Kong on Sept. 8.

The company said in its prospectus the pandemic and recent floods in several Chinese provinces have hurt sales, but these are temporary disruptions, according to Kevin Kim, an analyst at Bloomberg Intelligence. A growing focus on healthy living and rising incomes mean Nongfu’s natural mineral water drinks will do better than other types of drinking water in coming years, he said.

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First Published: Thu, September 03 2020. 08:07 IST
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