Hong Kong Edition: CATL is caught up in US-China clash

Volt face.

View in browser

In this week's Hong Kong Edition, we examine the challenging outlook for the world's biggest listing this year in CATL, interview Elephant Grounds' co-founder Gerald Li and indulge in a 12-course cheese feast at a new restaurant on Aberdeen Street. To subscribe to this weekly newsletter for free, click here.

Current Affairs

CATL's long road to a Hong Kong listing is finally reaching its destination. The Chinese electric-vehicle battery maker is expected to begin trading on Tuesday after the company planned to price its share sale at the top end of what it indicated, according to our reporting. CATL is set to raise at least $4 billion, and possibly as much as $5.3 billion. Despite strong investor demand for the world's biggest listing this year, the company's future is shrouded by uncertainty due to growing friction between China and the US and rising pressures on its business.  Earlier this year, the company was blacklisted by the Pentagon for alleged ties to the Chinese military, which CATL denies. Moreover, the US last year quadrupled tariffs on Chinese EVs to 102.5% — a de facto embargo. Along with higher levies by the European Union and a price war in China's own EV market, the result is the battery maker being squeezed. The company reported an almost 10% drop in sales for 2024, the first annual decline since it started reporting such figures in 2015. Contradictions abound as the US and China pick their way awkwardly across the geopolitical dance floor. Despite opposition by US lawmakers, Wall Street banks JPMorgan and Bank of America helped underwrite the deal. Tesla is one of CATL's top customers and it has a technology licensing agreement with Ford. Other financial figures show a brighter picture for the Chinese giant, which has a more than 35% share of the global electric-vehicle battery market. According to a March 31 report by Bloomberg Intelligence, the company's Ebit (earnings before interest and taxes) margin of 15% is well above peers such as LG Energy Solution and Samsung SDI. CATL's R&D expenses of roughly $2.6 billion dwarf rivals. While its competitors mostly have a negative free cash flow, CATL's is $9.1 billion in the black.  To insulate itself from possible US legal liability, the company made the rare move of switching the share sale solely to a so-called Reg S offering that doesn't allow sales to US onshore investors and exempts the issuer from certain US regulatory filing obligations, our reporting shows.  CATL has other shoulders to lean on, notably the Middle East. Kuwait Investment Authority has pledged to invest $500 million in the share sale. Chinese state-owned oil company Sinopec is investing the same amount. Altogether cornerstone investors, which have agreed to hold their shares for at least six months, have committed to buy about $2.6 billion worth of stock. For Hong Kong, the share sale is a huge win, and doubles the listings market for the year. For investors, they will need to see how CATL plots its tricky path through the challenging currents of the business it dominates. —Richard Frost Tea and IPOs CATL's share sale comes amid a rush of listings in the city after a prolonged drought — a flood which Hong Kong Edition foresaw last month. Auntea Jenny was the latest tea-maker to sell shares and transform the founders — in this case a husband and wife —  into billionaires.  Others include Junjie Zhang, the founder of Chagee, who listed his tea shop chain on the Nasdaq exchange in April, and the two brothers behind Mixue Group, a brand known for $1 bubble tea, coffee and ice cream, who amassed about $8 billion combined at the time of the company's debut in Hong Kong earlier this year.  High tea: The Snow King mascot on a cup at a Mixue store. Photographer: Na Bian/Bloomberg The wealth boom (among founders at least) and clamor for the shares come despite cut-throat competition in China and persistent deflation. Such gains may not last, if earlier IPOs are any guide. Chabaidao has failed to trade above its IPO price since listing just over a year ago. Nayuki, which kicked off the IPO trend by tea chains back in 2021 and used to have a shop at the Peak Galleria, has seen its shares dive more than 90% and its founders lose their billionaire status. Other upcoming listings include drugmaker Hengrui Pharmaceuticals, which has started taking investor orders for a Hong Kong listing that could raise as much as HK$9.9 billion ($1.3 billion). Little wonder then, that the city's investment banking job market is showing signs of a recovery, with the number of licensed professionals in the financial hub ticking up. —Filipe Pacheco

Chart of the Week

In some ways, ignoring Trump is one of the best ways to play financial markets, with global stock benchmarks including the S&P 500 Index and the Hang Seng Index recovering losses triggered by the acceleration of the US administration's tariff offensive.  One standout exception is the US dollar. It's fallen some 8% overall against world currencies since Trump took office. Its lasting depreciation reflects bets that his stated goals of a smaller trade deficit and a US manufacturing revival mean a weaker greenback — regardless of the official stance. This has a knock-on effect in Hong Kong due to the city's currency peg with the US. Further declines could bring some much-needed relief to the city's retail and F&B industries.

Five Minutes With: Gerald Li

Gerald Li is co founder of Leading Nation, a Hong Kong hospitality group that spans Elephant Grounds, Cardinal Point, Wagyumafia (a David Beckham favorite), The Diplomat and other venues. He talked to Hong Kong Edition about how offering value is increasingly important for F&B outlets in the city. How are your businesses adapting to the trend of Hong Kongers leaving the city to spend their money in Shenzhen and elsewhere in China? I go up [to China] and my kids love it. Until we in Hong Kong create these experiences and value propositions for them, they won't come back. So that means we have to do something. Consumers have always voted with their feet, and it is price, quality and experience. We are trying to create menus that are reasonably priced, so the difference between the travel time or quality, they don't see a difference anymore and they'll come back down.  As a corollary, we have the return of the Chinese consumer, except they're consuming very little. How does that affect your businesses? That's never been our clientele. If they come, it's great. As a company, we focus on a more upscale kind of market. What's next for your projects in the city? What's cooking? We're going to do concepts that are very value driven. It can be elevated dining experiences, bars or a mixture. I think the trend is to kind of not be pigeonholed into fine dining or to upscale dining, but create experiences where customers can spend as they wish. No set menus, pick what you want to eat or drink, and that's it. That's what we're going to be doing over the next 12 months. We've been seeing that as a norm in Hong Kong. —Filipe Pacheco and Alice Truong

The Review: Say Cheese

Roucou is a cheese omakase and bar that recently opened on Aberdeen Street opposite PMQ, and is the creation of Jeremy Evrard, former manager of Caprice and Upper Modern Bistro. I went recently with five friends and we indulged in the restaurant's 12-course cheese voyage. This took the form of a Japanese-French omakase at HK$1,280 per head. There's also the option of a HK$500 wine pairing, with bottles from up-and-coming vineyards. If you opt to order a la carte at the bar, friends who have done so suggest getting more than you might think, and also being adventurous in your cheese selections. Edam in heaven: Roucou Photographer: Tara Mulholland/Bloomberg The tasting menu has the odd moment of fine-dining silliness. Did a delicately woven cheese biscuit really need to be served in a ceramic mouth? Did the fatty tuna really need to be seared with a lump of charcoal? Does an espresso martini gain anything from having parmesan grated on the top? (Not really, maybe and no.) But the obvious care and love that Evrard and his team pour into the dishes mean the tonal extremes don't jar. He effortlessly whips up each course at the table with the chatty insouciance of an old friend at a dinner party — if that old friend had 20 years' experience in high-end dining across Asia. The vibe: Roucou is a restaurant with a split personality. At its buzzy front, diners in dimly lit banquettes can order cheese boards, oozy open-face sandwiches and tartiflettes, topped with a snowstorm of freshly grated cheese — snacky and shareable. But the real draw is the quiet private room in the back, with an eight-person stone-topped table, flanked by fridges of cheeses and wines, where the omakase experience takes place. The whole experience feels like freewheeling theater, directed by enthusiasts. Even if you know what you're getting into, Roucou can still deliver a meal of surprises. Each course has its provenance and inspiration explained while it's being constructed, along with asides on the quality of post-Brexit English cheese, or which part of the parmesan wheel is the tastiest (the center, if you're curious). The dishes are written on the back of a collection of cardboard lids for the soft cheeses, to be flipped over at the start of the course. There's even more homespun charm in seeing slabs of just-seasoned wagyu grilled over the flames of an open oven, or an artery-clogging comte mashed potato being whipped up in the sauce pan, or enormous wheels of cheese being carved into shards for our sampling. Wagyu beef with Comte mash. Photographer: Tara Mulholland/Bloomberg Can you conduct a meeting here? The front bar is probably too dark and chatty for any serious conversations. In the back room, the omakase is clearly the star. I say forget the meeting and just bring along seven of your favorite people. How's the food? Well, there's a lot of cheese on the menu, but it wears its richness lightly. The dishes veer from the eye-poppingly luxe (a brillat-savarin and caviar seaweed wrap to start) to the charmingly simple (a thick smear of blue cheese on top of malted sourdough, with a scoop of homemade butter that's as sweet as ice cream). An early standout was the crab tiramisu, with layers of crab, mango and papaya, topped with more brillat-savarin, and dusted with the bright red Roucou spice that gives the restaurant its name. Need to know: Roucou is on 28 Aberdeen Street. It takes reservations online and by phone at +852 9603 6591. The bar is open Tuesday to Thursday from 5 p.m. to 1 a.m., and Friday to Saturday from 3 p.m. to 1 a.m. The omakase is available Tuesday to Saturday from 6 p.m. to 11 p.m., with two seatings a night. —Tara Mulholland

Photo of the Week

Activist investor David Webb speaks to the media following his "Farewell Fireside Chat" at the Foreign Correspondents' Club. Read our story here.  Photographer: Paul Yeung/Bloomberg New Voices Event "Volatility is definitely here to stay," Amy Lo, co-head of wealth management for UBS in Asia, told a packed audience at Asia Society this week at Bloomberg New Voices, an initiative that provides media training to women executives and other underrepresented experts. Lo and Christina Au-Yeung, head of Investment Management Services at Morgan Stanley Private Wealth Management Asia, say they're seeing renewed investor optimism over China among Asia's ultra-rich after a breakthrough in trade talks between the world's two largest economies. The key is navigating the market uncertainty with deft — something Au-Yeung likened to her hobby of drifting cars. "Markets can be unpredictable and powerful and volatile, and in the hands of someone who is not skilled at navigating that, it can go everywhere," she said. Read more about it here. —Echo Wong

Here's What Else Is In the News

Li Ka-shing's China clash unnerves rich investors in Hong Kong Hong Kong's top developer sells out homes in hours as rates fall Tycoon Lau selling $4.5 million wine collection Hong Kong rushes to beef up security law, cementing China's grip

Coming Up

May 16-17: Ginsanity May 17: HK International Reggae Ska Festival May 21-June 22: Cirque du Soleil Kooza May 22-25: Affordable Art Fair May 30: Manchester United vs Hong Kong, China May 30-June 8: Hong Kong Ballet: Giselle May 31: Stanley International Dragon Boat Championships May 31-June 1: Hong Kong Whisky Festival  June 2: Book talk with Andrew Mertha on the Khmer Rouge June 11: Bloomberg Invest June 13-14: Jimmy O. Yang Live in Hong Kong  June 20-29: Extravaganza! When Brazil Meets Hong Kong July 26: AC Milan vs Liverpool July 31: Tottenham vs Arsenal

Thanks for reading our newsletter. Click here to read earlier editions. Subscribe here if you haven't, and send any feedback or ideas our way to [email protected].

Follow Us

Like getting this newsletter? Subscribe to Bloomberg.com for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. Learn more. Want to sponsor this newsletter? Get in touch here. You received this message because you are subscribed to Bloomberg's Hong Kong Edition newsletter. If a friend forwarded you this message, sign up here to get it in your inbox. Unsubscribe Bloomberg.com Contact Us Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022