(Yicai Global) Jan. 16 -- China’s ZJLD Group has filed for an initial public offering in Hong Kong, hoping to become the first baijiu maker to list there in seven years as competition escalates between makers of the popular liquor made from fermented sorghum.

Proceeds of the IPO will be mainly used for capacity expansion, brand building, and marketing over the next five years, ZJLD said in its Jan. 13 filing, noting that some of the money will go to upgrade digitalization and supplement operating funds. The firm did not disclose the size of the IPO, but an online media report said it could raise USD300 million to USD400 million.

Other Chinese baijiu producers, such as Sichuan Langjiu and Guizhou Guotai Liquor Group, also applied for listings in recent years, seeking to fund production expansions amid growing competition in the industry. Wu Xiangdong, ZJLD’s founder and chairman, had planned to take the Hong Kong-based distiller public since 2021.

ZJLD is China’s fourth-biggest private baijiu company by revenue, according to its IPO prospectus. Revenue jumped 18 percent to CNY4.25 billion (USD632 billion) in the nine months ended Sept. 30, while net profit fell 8.8 percent to CNY712 million (USD106 million).

The company owns the Zhenjiu, Lidu, and Xiangjiao brands, with most of its revenue coming from Zhenjiu, a soy sauce aroma type of the spirit. ZJLD is the fifth maker of soy sauce aroma baijiu to file for an IPO since 2020.

The Matthew effect -- whereby advantaged market players accrue even more advantage over time -- is becoming increasingly evident in the baijiu industry as it comes ever more under the sway of leading players and famous brands, analyst Cai Xuefei told Yicai Global. Producers will compete on production capacity, brand, culture, and channels in the future, he added, noting that going public is a means of obtaining funds to compete better.

Zhenjiu Holding, a firm owned by Wu, is ZJLD’s biggest shareholder with an 81.3 percent stake, followed by Kohlberg Kravis Roverts-backed Zest Holdings with 16.2 percent and ChinaNet with 2.5 percent, according to the filing. ChinaNet is controlled by ZJLD Executive Director Wu Guangshu.

ZJLD, which has distilleries in Guizhou, Jiangxi, and Hunan provinces, is renovating and installing new production equipment to speed up capacity expansion. The firm is expected to increase its annual capacity by 26,000 tons of liquor by 2024. Some 16,600 tons will be of soy sauce aroma baijiu.

By 2026, soy sauce aroma baijiu will account for almost 42 percent of China’s baijiu market, the most of any baijiu variety, ZJLD said, citing a report from US consultancy firm Frost & Sullivan. So ZJLD needs to expand output quickly to fortify its market-leading position and boost profits, it said.

Leading soy sauce aroma baijiu producers, including industry giant Kweichow Moutai, have been accelerating capacity expansion of this kind of baijiu in the past two years to seize a bigger market share.

Goldman Sachs and China Securities International are the IPO’s sponsors.

Editors: Shi Yi, Futura Costaglione