China Lodging Shares Surge on Debut

SHANGHAI/NEW YORK (Reuters) – Shares of discount Chinese hotel chain China Lodging Group Ltd (HTHT.O) rose as much as 27 percent above their initial public offering price on Friday as investors bet that rising incomes in China would increase travel.

The shares opened at $13.62 and rose as high as $15.50 in their Nasdaq debut. They closed at $13.92. The company sold 9 million American Depositary Shares at $12.25 each on Thursday, raising $110.25 million.

China Lodging Group rents budget hotel rooms in China through three chains. Its website, ir.htinns.com, sports photos of hotel rooms, including one with bunk beds.

Most of China Lodging’s hotels are in big cities in the industrialized eastern part of the country, where business travelers have helped to ratchet up the market for budget hotels, analysts said.

Lily Ng, a senior vice president at Jones Lang LaSalle Hotels in Shanghai, said domestic as well as foreign travel may increase in China.

“Traveling among Chinese is also becoming more frequent as incomes increase. Another factor driving hotel demand is increasing commercial and trading activity, which is spurring the development and expansion of companies in China.”

As China’s hotel sector expands, analysts have expressed concern that growth could be too rapid, leaving a glut of rooms without sufficient demand.

Media inside China have reported that the Chinese government could take steps to cool the hotel sector.

When China wanted to slow growth of its real estate sector, the government said it would require some large state-owned enterprises whose core business was not in the property sector to withdraw from the business.

LEGAL QUESTIONS

China Lodging, sharing characteristics with other Chinese IPOs, said in its prospectus that it might not be in compliance with certain Chinese laws.

It wrote in its prospectus that it does not hold land-use rights for any of its properties, and it holds some leases without the permission of the property owners or government authorities. It also wrote that it may be afoul of labor law.

In the run up to China Lodging Group’s IPO, IPOfinancial.com President David Menlow said such non-compliance issues were apparently not a major concern, given that Goldman Sachs (GS.N) and Morgan Stanley (MS.N)were proceeding with the offering.

The company’s founder and executive chairman, Qi Ji, also has experience in the industry, having co-founded online travel services provider Ctrip.com (CTRP.O) and Chinese discount hotelier Home Inns & Hotels Management Inc (HMIN.O).

“OKAY HOTEL”

China Lodging runs three hotel chains in China: HanTing Express, its main chain; HanTing Seasons, its premium chain; and HanTing Hi Inn, its discount chain.

At a Seasons hotel in downtown Shanghai, for example, rooms rent for 300-400 yuan ($43.95-$58.60) a night. The hotel is less than a four minute walk from a shopping mall and subway.

Aimed at mid-level executives and business owners, a room at the Seasons features modern wooden furniture, a black leather chair and large windows.

“It is not bad. It is quite an okay hotel, better for young people. We chose it because our conference is just opposite. It is clean, good for a short trip,” said Zhang Lihun, 46, who works in the export business and was in town for a three-day conference.

Another guest, 30 year-old software company employee Guan Kun, in Shanghai for two days, said the hotel was loud at night and he could hear street noise, but the location was convenient.

The hotel group aims for broad appeal, not just business people, and this is reflected on its website, which features an animated cartoon horse.

 

An employee of China Lodging Group explained that the horse is a nod to the chief executive, who was born in the year of the horse. “It is representative of Chinese history and symbols,” the employee said.

(Reporting by Farah Master in Shanghai and Clare Baldwin in New York; Additional reporting by Lee Chyen Yee and James Pomfret in Hong Kong; Editing by Toni Reinhold)

peHUB note: Shareholders include Chengwei Ventures (4.93% post-IPO stake), IDG Venture Capital (2.85%) and Northern Light Venture Capital (2.12%)