In a lawsuit brought by a US pension fund, Chinese shipping giant ZTO Express has been accused of providing misleading profit statements to entice investors to its $1.4bn IPO listing last year. As chief underwriters of the deal, Morgan Stanley and Goldman Sachs are also named in the suit for failing to carry out sufficient due diligence.
ZTO raised a massive $1.4bn in its IPO last October, the largest listing in 2016, with shares valued at $19.50. However, this value has never been equalled since, and shares closed at $15.68 on July 20. Despite this figure being almost 20 percent lower than the IPO, it is actually the highest price shares have reached in 2017; they hit a low of $11.23 in March.
ZTO is one of the world’s biggest delivery companies and serves over 96 percent of cities and counties in China
Reuters first reported the lawsuit, which was filed in May by the City of Birmingham Pension Fund in the state court of Alabama. The pension fund has accused ZTO of selectively including only profitable areas of its business in financial statements to inflate profits, and of issuing “untrue statements” and omitting “crucial realities” in its registration statement.
ZTO is one of the world’s biggest delivery companies and serves over 96 percent of cities and counties in China, with a widespread customer base fuelled by the company’s partnership with e-commerce giant Alibaba. ZTO claims its profitability is rooted in the massive and growing popularity of e-commerce in China.
However, this profitability has been called into question in the lawsuit, with the pension fund claiming ZTO uses a complicated business structure to mask the reality of its financial performance.
“ZTO used a system of ‘network partners’ to handle lower-margin pickup and delivery services, while maintaining ownership of core hub operations. By keeping the network partners’ business off its own books, the company was able to exaggerate profit margins to investors,” the lawsuit stated.