Tencent-backed startup seeks pre-IPO funds at 10 billion yuan value

YONGHUI Fresh Food, the fast-growing grocery supply affiliate of 1 of China’s biggest retail conglomerates, is seeking to raise about US$200 million ahead of a Hong Kong initial public offering (IPO) next year, people familiar with the matter said.

The business-to-business-focused startup is aiming for a valuation of 10 billion yuan (S$2 billion) despite the cooling climate for private investment, the people said, asking for anonymity when discussing a private deal. The 7-year-old firm has also been in talks with financial advisors for a Hong Kong listing that could take place as soon as the second quarter of 2023, the people added.

Yonghui Fresh Food - backed by Sequoia Capital, Hillhouse Capital and Tencent Holdings - joins a growing list of Chinese startups trying to replenish financial reserves at a time when Covid lockdowns and a decelerating economy are sapping consumption.

The fresh produce procurement, storage and distribution firm, associated with the nationwide Yonghui Superstores chain, was valued at 7.5 billion yuan during a late 2020 round of financing, the people said. A similar-sized rival operated by agricultural titan New Hope Group is also seeking US$100 million in fresh funding, Bloomberg News has reported.

Discussions around the fundraising and IPO are ongoing and details such as deal size, timeline and venue could change, the people added. Representatives for Yonghui Superstores and Yonghui Fresh Food didn’t respond to emails and calls seeking comment.

The fundraising efforts come as China continues to battle Covid with some of the world’s most stringent measures. Prolonged disruptions from ad-hoc lockdowns across the country have wreaked havoc on the food industry, but Yonghui Fresh Food’s focus on enterprise clients and providing them with 1-stop catering solutions helped it navigate a slowdown in consumer spending.

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With operations across 20 Chinese regions, Yonghui Fresh Food said it turned profitable this year. In addition to serving as the central food management centre for its parent, it now also supplies fresh produce to major businesses such as Bank of China and oil and gas giant PetroChina, according to its website.

That expansion has helped Yonghui Superstores create new growth engines as the traditional hypermarket model comes under pressure. Foot traffic to large, physical shopping locations is declining as the pandemic drags on and online groceries take their place.

Tencent and Alibaba Group Holding have in past years invested in traditional retailers like Sun Art Retail Group in hopes of modernising a giant but outmoded sector and integrating customers into their other services. The capital raised has helped players like Yonghui branch out into new arenas, propping up their bottom lines in the face of intense online competition.

Tencent first invested in Yonghui in 2017, a rare foray for the social media giant into a brick-and-mortar industry. BLOOMBERG