Oatly’s US IPO prospectus highlights risks to its Chinese backer

Oatly, the Blackstone-backed vegan milk company which on Monday filed to float on Nasdaq, said it would consider adding a listing in Hong Kong within the next two years, citing its relationship with a Chinese state-owned conglomerate.

China Resources owns more than 60 per cent of the Swedish group through a joint venture with the Belgian family investment group Verlinvest and has helped the company to dramatically expand its presence in China in recent years.

In a prospectus for its Nasdaq share offering, Oatly said it could seek a second listing in Hong Kong if its status as a US public company had a “material adverse effect” on its leading shareholders.

Explaining why it had agreed the provision, Oatly cited the possibility that the US government could make it hard for the group to share information with a state-owned company and might prevent China Resources from placing its representatives on the Oatly board, or even force it to divest.

The company also said it could pursue a Hong Kong listing if it generated more than 25 per cent of its revenue from sales in the Asia-Pacific region for two consecutive fiscal quarters.

It’s difficult to have a large float without Chinese investors being involved these days

The prospectus detailed how Oatly has been able to rapidly expand its presence outside Europe, with Asia and the Americas contributing a combined $150m, or 36 per cent of total revenues, last year compared to $50m, or 24 per cent, in 2019.

Oatly’s products are now sold at more than 9,500 shops in China, three years after launching in the country. In the US, Oatly products can be found at 7,500 retailers and in more than 10,000 coffee shops.

The relationship with China Resources attracted controversy when the group invested in Oatly with Verlinvest in 2016, prompting Swedish media to highlight China’s environmental and human rights record.

“It’s difficult to have a large float without Chinese investors being involved these days,” said one small Oatly shareholder from a venture capital firm.

Malmo-based Oatly has grown on the back of the popularity of plant-based milk alternatives across the globe and is pushing for a $10bn valuation from the Nasdaq float, according to people familiar with its plans.

An investment round last year led by Blackstone valued the oat milk maker at $2bn. Oatly’s other investors include television host Oprah Winfrey and rapper Jay-Z’s Roc Nation.

The prospectus confirmed earlier revenue estimates of more than $400m in 2020 — $421m to be precise, up from $204m in 2019 — though losses widened from $35.6m to $60.4m.

International expansion has focused on the specialty coffee market, with its “barista” milk which froths like cow’s milk. Oatly has also expanded into making and selling plant-based ice cream and yoghurt, although its oat milk made up 90 per cent of revenue last year.

The company said it was planning to raise $100m in its initial public offering, a place holder number that is likely to change. Morgan Stanley, JPMorgan and Credit Suisse are leading the offering.