• Shares surged on gray market ahead of formal trading debut

• Mixue adds to Hong Kong’s revival of city’s IPO market

Mixue company mascots at its global headquarters in Zhengzhou city, Henan province.Photographer: Feature China/Future Publishing/Getty Images

Mixue Group, China’s largest bubble-tea chain, will begin trading in Hong Kong on Monday after individual investors flocked to the company’s blockbuster HK$3.45 billion ($444 million) initial public offering.

In a sign that the stock may pop, Mixue surged on an over-the-counter gray market platform operated by KGI Securities on Friday. The stock was sold at HK$202.50 apiece during the IPO.

The enormous demand — mom-and-pop investors bid for thousands of times the shares they could buy — helped Mixue capitalize on the rage for drinks like bubble tea, a market that’s forecast to surge to $71 billion in three years. Its success also helps fuel optimism over the revival of Hong Kong’s IPO market, which is projected to double this year.

“Whoever wins the mass market wins the world,” said Ben Harburg, founder of CoreValues Alpha. “Demand remains high for Chinese domestic fast moving consumer goods brands.”

For the founder, Zhang Hongchao, and his younger brother, Zhang Hongfu, the share sale bolstered their combined fortune to $8.1 billion according to the Bloomberg Billionaires Index. That’s more than what Howard D. Schultz, the former chief executive officer of Starbucks Corp., is worth.

Founded in 1997 in central China’s Henan province, Mixue has morphed into a food-and-beverage giant with over 45,300 shops — more than Starbucks or McDonald’s Corp. — by selling $1 bubble tea, coffee and ice cream. Mixue relies on a franchising model to help it open shops across the country, with a deep penetration into lower-tier cities and towns.

But cut-throat competition is prompting the tea chains to raise money to keep expanding and opening more stores, with players such as Guming Holdings Ltd. and Sichuan Baicha Baidao Industrial Co. going public in Hong Kong in the past year.

Mixue’s float has been the largest so far in what’s shaping up to be Hong Kong’s biggest year for IPOs since 2021. With mega deals such as those of CATL, which is expected to raise more than $5 billion, on the horizon, proceeds from going public are poised to double to more than $22 billion in 2025, according to Bloomberg Intelligence.

The trading debut comes weeks after that of Guming, which sells its tea under the “Good me” brand and focuses its business in smaller cities and townships in China. That stock is up 16% since it began trading in mid February.

Still, not all bubble-tea makers have fared as well. Sichuan Baicha Baidao, which came to market in April and sells its products under the Chabaidao brand, and rival Nayuki Holdings Ltd. have seen the initial hype over their shares fizzle and are now both trading below their IPO prices amid fierce competition in the industry.

As for Mixue, it’s counting on its market dominance to make it a more desirable investment. Its IPO became so sought after that Hong Kong individual investors applied to borrow more than HK$1.8 trillion to buy the stock. The flood of applications led underwriters to stop taking orders a day earlier than planned, people familiar with the matter said.