After one year of special spin-off acceptance, China Southern Airlines Logistics IPO still fails

The three major aviation logistics companies are temporarily unable to gather in the A-shares.

Recently, China Southern Airlines (600029.SH) announced the termination of the main board IPO of its subsidiary, China Southern Airlines Logistics Co., Ltd. (hereinafter referred to as "China Southern Logistics").

According to China Southern Airlines' explanation, this decision is mainly based on considerations of the market environment.

"The current changes in the market environment require a coordinated arrangement of capital operation planning. After full communication and prudent demonstration, China Southern Logistics intends to withdraw its application documents for listing on the Shanghai Stock Exchange," China Southern Airlines pointed out.

As a result, among the three major aviation logistics companies, only Eastern Airlines Logistics (601156.SH) and China National Aviation (001391.SZ) have successfully landed in the A-shares.

The main reason for the failure of China Southern Logistics' IPO may still be attributed to the drag from its parent company, China Southern Airlines.

One of the requirements for listed parent companies in the "Rules for the Spin-off of Listed Companies (Trial)" (hereinafter referred to as "Spin-off Rules") is to have continuous profitability for the last three accounting years.

However, China Southern Airlines is mired in losses, with net losses of 32.682 billion yuan and 4.209 billion yuan in 2022 and 2023, respectively.

Although China Southern Airlines' performance has improved since last year, it has not yet achieved profitability, and it is expected that the net loss in 2024 will still be between 1.25 billion yuan and 1.87 billion yuan.

However, as early as the end of 2023, when China Southern Logistics applied for the IPO, China Southern Airlines was already in a loss state due to the impact of the pandemic—its net profit attributable to the parent company from 2020 to 2022 was -10.842 billion yuan, -12.103 billion yuan, and -32.682 billion yuan, respectively.

The application for the IPO without meeting the spin-off rules has caused some controversy in the market.

At that time, TradeWind (ID: TradeWind01) learned exclusively from investment banking personnel close to China Southern Logistics that the reason this project could be accepted for application without meeting the spin-off rules was due to its use of a special "simulation testing" method. (For details, see TradeWind (ID: TradeWind01) article on January 16, 2024, "How to Overcome Obstacles When Financial Indicators Do Not Meet Spin-off Rules? A Detailed Explanation of China Southern Logistics' Shanghai Stock Exchange Main Board IPO 'Simulation Testing Technique'")

It is understood that this method can be used in situations where historical performance is impacted by force majeure.

Due to the existence of force majeure, the financial data of China Southern Airlines from 2020 to 2022 is insufficient to reflect the true operating level, so it used the operating data from 2017 to 2019 as a substitute calculation.

From 2017 to 2019, the net profit attributable to the parent company of China Southern Airlines was 5.914 billion yuan, 2.983 billion yuan, and 2.651 billion yuan, respectively.

However, since China Southern Logistics was established in 2018 and lacks corresponding historical data, the final calculation combined the performance of China Southern Airlines, the industry level of China Southern Logistics, and other data, resulting in the net profit attributable to the parent company of China Southern Logistics from 2017 to 2019 being 812 million yuan, 924 million yuan, and 673 million yuan, respectively "From 2020 to 2022, the aviation industry was significantly impacted by external factors, resulting in huge losses, which does not mean that there were issues with the airlines themselves. At that time, the acceptance of applications was indeed approved by the relevant departments," explained an investment banker in Shenzhen to Xinfeng (ID: TradeWind01).

However, with the introduction of the "New National Nine Articles" in April 2024, stricter regulations on spin-off listings were proposed, leading many projects to withdraw their IPO applications.

The combination of not meeting spin-off rules and the tightening regulatory environment may have forced China Southern Airlines Logistics to proactively terminate its IPO.

Whether China Southern Airlines Logistics will abandon its pursuit of listing remains uncertain.

Currently, the general market view is that, with China Cargo Airlines and Eastern Airlines Logistics already listed on the A-share market, China Southern Airlines Logistics may still not give up on the path to listing.

An investment banker in Beijing pointed out that in the future, China Southern Airlines Logistics may take one of the following two paths to go public.

One is to wait for the performance of China Southern Airlines and the external environment to improve before pushing for an IPO. This means that if China Southern Airlines Logistics wants to restart its IPO, it will need to wait at least another three years;

The second is for China Southern Airlines to spin off China Southern Airlines Logistics to outside the listed company, thus its IPO would not be subject to the constraints of the spin-off rules.

For example, both Eastern Airlines Logistics and China Cargo Airlines pushed for their IPOs after separating from the listed company systems of China Eastern Airlines (600115.SH) and Air China (601111.SH).

On February 24, Xinfeng (ID: TradeWind01) had already sought confirmation from China Southern Airlines regarding the listing plans of China Southern Airlines Logistics, but as of the time of publication, no response had been received