State-owned monopoly China National Tobacco Corp is poised to open up to private investment with its planned initial public offering in Hong Kong this year. The move comes amid increasing pressure on the government to reduce smoking as concerns over its health risks, particularly high cancer rates, continue.
China is reportedly the biggest manufacturer and consumer of tobacco worldwide and is facing criticism both locally and internationally due to its lackluster efforts to curb it, according to Bloomberg. Media reports also say that the reason why the state is not so aggressive with cutting production is that it takes a huge amount of tax revenue from this industry. The planned IPO is then seen as a significant effort, albeit small, to take heed of the community's concerns. It is being facilitated with the assistance of China Merchants Securities and CICC as joint sponsors.
Figures from the company's website reveal that the tobacco industry brought in CNY1.1 trillion (US$160 billion) in profit and tax in 2016, although this is reportedly the only financial figure that was made available to the public. China Tobacco does not voluntarily publish its financial information, but past earnings reports give the public a pretty good gauge of its performance. In 2012, the company said that it earned CNY 770.4 billion while in 2010 it logged a net income of CNY117.7 billion.
China Tobacco accounts for four of every 10 sticks of cigarette produced worldwide. Majority of the tobacco leaves it processes come from Canada and Brazil. According to Fortune, the company earns mostly from the 6 percent markup it applies to the overseas tobacco supply when it sells to local makers. It also has a full monopoly and control of exports and locally-produced leaves from the Sichuan and Yunnan provinces.
China Tobacco's global arm is small compared to its massive overall business, which is said to hold a bigger share of the world market than the next five largest international tobacco companies combined. However, the planned IPO is seen as a crucial first step by the previously super-tight government to finally curb smoking-related health issues.
