Correspondence 0001104659-23-124616 from ZKH Group Ltd (ZKH)
ZKH Group Ltd
Date: Dec. 8, 2023 · CIK: 0001862044 · Accession: 0001104659-23-124616
AI Filing Summary & Sentiment
File numbers found in text: 333-270316
Referenced dates: December 5, 2022, December 7, 2023, June 22, 2022
Letter
VIA EDGAR Division of Corporation Finance Office of Trade & Services 100 F Street, NE Washington, D.C. 20549 Re: ZKH Group Limited (CIK No. 0001862044) Registration Statement on Form F-1 (File No. 333-270316)
Dear Mr. Field, Ms. Beech, Mr. Rhodes and Ms. Lumley:
On behalf of our client, ZKH Group Limited, a foreign private issuer organized under the laws of the Cayman Islands (the “Company”), we are filing herewith Amendment No. 3 to the Company’s registration statement on Form F-1 (the “Registration Statement”) containing a preliminary prospectus with an estimated price range and certain exhibits via EDGAR with the Securities and Exchange Commission (the “Commission”).
The Company respectfully advises the staff of the Commission (the “Staff”) that the Company plans to commence the road show for the proposed offering on or around December 10, and request that the Staff declare the effectiveness of the Registration Statement on or about December 14, 2023. The Company, together with the underwriters, will file joint acceleration requests in time before the requested effective time. The Company would greatly appreciate the Staff’s continuing assistance and support to the Company in meeting the proposed timetable for the offering.
U.S. Securities and Exchange Commission
December 8, 2023
Page 2
Concurrently with the filing of the Registration Statement, the Company is hereby in this letter setting forth the Company’s responses to the comments contained in the letters from the Staff dated June 22, 2022, December 5, 2022 and December 7, 2023, respectively. The Staff’s comments are repeated below in bold and are followed by the Company’s responses. We have included page references in the Registration Statement where the language addressing the comment appears. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Registration Statement.
Letter from the Staff dated June 22, 2022
Notes to Consolidated Financial Statement
21. Share-based compensation, page F-46
11. Once you have an estimated offering price or range, please explain to us how you determined the fair value of the common stock underlying your equity issuances and the reasons for any differences between the recent valuations of your common stock leading up to the IPO and the estimated offering price. This information will help facilitate our review of your accounting for equity issuances including stock compensation and beneficial conversion features.
Please refer to the response to comment 9 contained in the letter from the Staff dated December 7, 2023.
Letter from the Staff dated December 5, 2022
Critical Accounting Estimates
Fair Value of Our Ordinary Shares and Valuation of Our Ordinary Shares, page 111
3. Once you have an estimated offering price or range, please provide us with an analysis explaining the reasons for the differences between the recent valuations of your common stock leading up to the initial public offering and the estimated offering price. This information will help facilitate our review of your accounting for equity issuances including stock compensation and beneficial conversion features.
Please refer to the response to comment 9 contained in the letter from the Staff dated December 7, 2023.
Letter from the Staff dated December 7, 2023
Cover Page
1. Revise to explicitly state that your Cayman Islands holding company structure involves unique risks to investors and that investors may never hold equity interests in the Chinese operating companies.
In response to the Staff’s comment, the Company has revised the disclosure on the cover page of the Registration Statement.
U.S. Securities and Exchange Commission
December 8, 2023
Page 3
2. Revise to disclose the specific location of your auditor's headquarters.
In response to the Staff’s comment, the Company has revised the disclosure on the cover page and pages 12 and 62 of the Registration Statement.
3. Where you discuss how cash is transferred through your organization, here and on page 9, revise to include a cross reference to the consolidated financial statements.
In response to the Staff’s comment, the Company has revised the disclosure on the cover page and page 9 of the Registration Statement.
4. We note your disclosure that "[t]o the extent cash or assets in the business is in the PRC or a PRC entity, the funds and assets may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on the ability of ZKH or its subsidiaries by the PRC government to transfer cash or assets." Revise the referenced trapped cash/assets disclosure to include references to Hong Kong. In this regard, we note that your Cayman Islands holding company structure includes an intermediary Hong Kong subsidiary.
The Company respectfully submits to the Staff that there is no equivalent or similar restriction or limitation in Hong Kong on cash or assets transfers in, or out of, Hong Kong entities, as of the date hereof. In the event that such restriction or limitation is imposed in Hong Kong in the future, the Company will address and provide disclosure as appropriate. The Company has revised the disclosure on the cover page of the Registration Statement to clarify.
Prospectus Summary
Permissions Required from the PRC Authorities for Our Operations, page 8
5. We note your disclosure that "as of the date of this prospectus, [y]our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are required for their business operations in China." Revise to explicitly state whether any permissions or approvals have been denied. Please also describe the consequences to you and your investors if you or your subsidiaries: (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and you are required to obtain such permissions or approvals in the future.
In response to the Staff’s comment, the Company has revised the disclosure on page 8 of the Registration Statement.
U.S. Securities and Exchange Commission
December 8, 2023
Page 4
Permissions Required from the PRC Authorities for This Offering, page 10
6. Revise to state affirmatively whether the company and its subsidiaries have received all requisite permissions or approvals from Chinese authorities to offer the securities being registered to foreign investors and whether any permissions or approvals have been denied. In this regard, we note that the company completed a cybersecurity review with CAC and completed the required filings with CSRC.
In response to the Staff’s comment, the Company has revised the disclosure on page 10 of the Registration Statement.
Corporate History and Structure, page 13
7. In the diagram of your corporate structure, revise to identify the person or entity that owns the equity in each depicted entity. In this regard, we note that you have not identified the equity owner(s) for ZKH Group Limited. Also revise to identify clearly the entity in which investors are purchasing their interest and the entities in which the company's operations are conducted. Lastly, revise to discuss and disclose your dual-class structure to include the post-offering ownership and voting power percentages of the relevant shareholder contingency groups, i.e. public shareholders versus Mr. Long Chen and the Management Shareholders.
In response to the Staff’s comment, the Company has revised disclosure on pages 14 and 98 of the Registration Statement.
Risk Factors
The approval of the China Securities Regulatory Commission..., page 61
8. We note that the heading of this risk factor suggests CSRC approval "may" be required in connection with this offering and that you cannot predict whether you will obtain such approval, but the body of the risk factor states that approval is required and that you have already received such approval. Revise for consistency, particularly focusing on future offerings.
In response to the Staff’s comment, the Company has revised the disclosure on page 58 of the Registration Statement.
Critical Accounting Estimates
Fair Value of Our Ordinary Shares and Valuation of Our Ordinary Shares, page 120
9. Please provide us with an analysis explaining the reasons for the differences between the recent valuations of your common stock leading up to the initial public offering and the estimated offering price. In addition, please provide us with a quantitative and qualitative analysis explaining the difference between the estimated offering price and the fair value of each equity issuance through the date of effectiveness for the preceding twelve months.
IPO price range
The Company preliminarily estimates a price range of US$15.50 and US$17.50 per ADS, equivalent to US$0.44 to US$0.50 per share (the “Preliminary Price Range”) for its IPO. This represents an equity value of the Company of US$2,412 million to US$2,741 million.
U.S. Securities and Exchange Commission
December 8, 2023
Page 5
As is typical in IPOs, the Preliminary Price Range was not derived using a formal determination of fair value, but was determined by discussions between the Company and the underwriters. Among the factors that were considered in setting the Preliminary Price Range were the following:
· the general conditions of the securities market and the recent market prices of, and the demand for, publicly-traded common stock of comparable companies;
· the Company’s financial condition and prospects;
· estimates of business potential and earnings prospects for the Company and the industry in which it operates;
· recent performance of IPOs of generally comparable companies;
· business developments impacting the Company; and
· input received from the lead underwriters, including discussions among senior management of the Company, the Company’s Board of Directors (the “Board”) and representatives of the lead underwriters.
In determining the Preliminary Price Range, the underwriters focused on a number of valuation methodologies to triangulate the valuation, including a discounted cash flow analysis and relevant trading multiples.
The Preliminary Price Range does not take into account the current lack of liquidity for the Company’s common stock and assumes a successful IPO with no weighting attributed to any other outcome for the Company’s business, such as remaining a privately held company or being sold in an acquisition transaction. The parameters of the Preliminary Price Range will be subject to then-current market conditions, continuing discussions with the underwriters and any business developments impacting the Company.
Historical fair value determination
As stated in the Registration Statement, share-based compensation expense related to share options and restricted shares granted to employees and executives of the Company is measured at the date of grant based on the fair value of the award. The Registration Statement describes the Company’s use of the binomial option-pricing model for these purposes and describes and quantifies the significant assumptions used.
As there has been no public market for the ordinary shares to date, the estimated fair value of the ordinary shares has been determined by the Company’s Board as of the date of each share-based awards grant in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, and with the assistance of an independent third-party valuation firm. A detailed description of the factors considered in the determination of the fair value of the Company’s ordinary shares is set forth on pages 120 to 122 of the Amendment No.2 to Registration Statement on Form F-1.
U.S. Securities and Exchange Commission
December 8, 2023
Page 6
The following table summarizes share-based awards granted during the 24 months prior to the date of this amended Registration Statement, and the estimated fair value of the Company’s ordinary shares on each grant date determined using the income approach based on management’s estimates of the discounted cash flows.
Grant date
Type of awards
No. of shares granted
Fair value per ordinary share
December 30, 2021
Restricted shares
100,000,000
RMB1.35 (US$0.21)
January 18, 2022
Share options
3,650,000
RMB1.35 (US$0.21)
February 1, 2022
Share options
34,760,697
RMB1.35 (US$0.21)
July 1, 2022
Share options
17,811,961
RMB1.40 (US$0.21)
January 18, 2023
Share options
2,806,516
RMB2.04 (US$0.30)
June 30, 2023
Share options
11,708,927
RMB2.33 (US$0.32)
December 1, 2023
Share options
66,392,000
Valuation in process*
*This is a subsequent event, and the valuation of the common stocks is still in process, which will not impact the financial statements included in this filing.
The Company’s most recent round of financing was Series F convertible note entered into in January 2022 in an aggregate principal amount of US$221.8 million and subsequently converted into 392,013,413 Series F convertible preferred shares at a conversion price of US$0.5659 per share in October 2022. The Series F financing was considered to be an arms’-length transaction due to participation by certain unrelated new investors. The Company, with the assistance of an independent third-party valuation firm, used back solve method to estimate the business entity value based on the Series F transaction price. The business entity value was then allocated to each element of the Company’s capital structure (convertible redeemable preferred shares and ordinary shares) using probability-weighted expected return method and option pricing method. In the Company’s case, three scenarios were assumed, namely: (i) the liquidation scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, (ii) the redemption scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (iii) the mandatory conversion scenario, in which equity value was allocated to convertible preferred shares and ordinary shares on an as-if converted basis. Based on the above discussed method, the fair value of the ordinary shares was calculated to be RMB1.38 (US$0.21). It was compared to the estimated fair value of the ordinary shares of RMB1.35 (US$0.21) from the discounted cash flow model as described in the table above and the difference was considered not unreasonable.
Differences between the valuations of ordinary shares as of December 30, 2021 to the mid-point of Preliminary Price Range for this offering
The
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CORRESP
1
filename1.htm
Partners
Geoffrey Chan *
Shu Du *
Andrew L. Foster *
Chi T. Steve Kwok *
Edward H.P. Lam ¨*
Haiping Li *
Rory McAlpine ¨
Jonathan B. Stone *
Paloma P. Wang
¨ (Also Admitted in England &
Wales)
* (Also Admitted in New York)
Skadden,
Arps, Slate, Meagher & Flom
世達國際律師事務所
42/F,
EDINBURGH TOWER, THE LANDMARK
15
QUEEN’S ROAD CENTRAL, HONG KONG
________
TEL: (852) 3740-4700
FAX: (852) 3740-4727
www.skadden.com
AFFILIATE OFFICES
_________
BOSTON
CHICAGO
HOUSTON
LOS ANGELES
NEW YORK
PALO ALTO
WASHINGTON, D.C.
WILMINGTON
__________
BEIJING
BRUSSELS
FRANKFURT
LONDON
MUNICH
PARIS
SÃO PAULO
SEOUL
SHANGHAI
SINGAPORE
TOKYO
TORONTO
December 8, 2023
VIA EDGAR
Mr. Donald Field
Ms. Taylor Beech
Mr. Blaise Rhodes
Ms. Angela Lumley
Division of Corporation Finance
Office of Trade & Services
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re: ZKH Group Limited (CIK No. 0001862044)
Registration Statement on Form F-1 (File No. 333-270316)
Dear Mr. Field, Ms. Beech, Mr. Rhodes and Ms. Lumley:
On behalf of our client, ZKH Group Limited, a foreign
private issuer organized under the laws of the Cayman Islands (the “Company”), we are filing herewith Amendment No.
3 to the Company’s registration statement on Form F-1 (the “Registration Statement”) containing a preliminary
prospectus with an estimated price range and certain exhibits via EDGAR with the Securities and Exchange Commission (the “Commission”).
The Company respectfully advises the staff of the
Commission (the “Staff”) that the Company plans to commence the road show for the proposed offering on or around December
10, and request that the Staff declare the effectiveness of the Registration Statement on or about December 14, 2023. The Company, together
with the underwriters, will file joint acceleration requests in time before the requested effective time. The Company would greatly appreciate
the Staff’s continuing assistance and support to the Company in meeting the proposed timetable for the offering.
U.S. Securities and Exchange Commission
December 8, 2023
Page 2
Concurrently with the filing of the Registration
Statement, the Company is hereby in this letter setting forth the Company’s responses to the comments contained in the letters from
the Staff dated June 22, 2022, December 5, 2022 and December 7, 2023, respectively. The Staff’s comments are repeated below in bold
and are followed by the Company’s responses. We have included page references in the Registration Statement where the language addressing
the comment appears. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Registration Statement.
Letter from the Staff dated June 22, 2022
Notes to Consolidated Financial Statement
21. Share-based compensation, page F-46
11. Once you have an estimated offering price or range, please explain to us how you determined the fair value of the common stock
underlying your equity issuances and the reasons for any differences between the recent valuations of your common stock leading up to
the IPO and the estimated offering price. This information will help facilitate our review of your accounting for equity issuances including
stock compensation and beneficial conversion features.
Please refer to the response to comment
9 contained in the letter from the Staff dated December 7, 2023.
Letter from the Staff dated December 5, 2022
Critical Accounting Estimates
Fair Value of Our Ordinary Shares and Valuation of Our Ordinary
Shares, page 111
3. Once you have an estimated offering price or range, please provide us with an analysis explaining the reasons for the differences
between the recent valuations of your common stock leading up to the initial public offering and the estimated offering price. This information
will help facilitate our review of your accounting for equity issuances including stock compensation and beneficial conversion features.
Please refer to the response to comment
9 contained in the letter from the Staff dated December 7, 2023.
Letter from the Staff dated December 7, 2023
Cover Page
1. Revise to explicitly state that your Cayman Islands holding company structure involves unique risks to investors and that
investors may never hold equity interests in the Chinese operating companies.
In response to the Staff’s comment, the Company has
revised the disclosure on the cover page of the Registration Statement.
2
U.S. Securities and Exchange Commission
December 8, 2023
Page 3
2. Revise to disclose the specific location of your auditor's headquarters.
In response to the Staff’s comment, the Company has
revised the disclosure on the cover page and pages 12 and 62 of the Registration Statement.
3. Where you discuss how cash is transferred through your organization, here and on page 9, revise to include a cross reference to the
consolidated financial statements.
In response to the Staff’s comment,
the Company has revised the disclosure on the cover page and page 9 of the Registration Statement.
4. We note your disclosure that "[t]o the extent cash or assets in the business is in the PRC or a PRC entity, the funds and
assets may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of
restrictions and limitations on the ability of ZKH or its subsidiaries by the PRC government to transfer cash or assets." Revise
the referenced trapped cash/assets disclosure to include references to Hong Kong. In this regard, we note that your Cayman Islands
holding company structure includes an intermediary Hong Kong subsidiary.
The Company respectfully submits to the
Staff that there is no equivalent or similar restriction or limitation in Hong Kong on cash or assets transfers in, or out of, Hong Kong
entities, as of the date hereof. In the event that such restriction or limitation is imposed in Hong Kong in the future, the Company will
address and provide disclosure as appropriate. The Company has revised the disclosure on the cover page of the Registration Statement
to clarify.
Prospectus Summary
Permissions Required from the PRC Authorities for Our Operations,
page 8
5. We note your disclosure that "as of the date of this prospectus, [y]our PRC subsidiaries have obtained the requisite licenses
and permits from the PRC government authorities that are required for their business operations in China." Revise to explicitly state
whether any permissions or approvals have been denied. Please also describe the consequences to you and your investors if you
or your subsidiaries: (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions
or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and you are required to obtain such
permissions or approvals in the future.
In response to the Staff’s comment, the Company has
revised the disclosure on page 8 of the Registration Statement.
3
U.S. Securities and Exchange Commission
December 8, 2023
Page 4
Permissions Required from the PRC Authorities for This Offering,
page 10
6. Revise to state affirmatively whether the company and its subsidiaries have received all requisite permissions or approvals from
Chinese authorities to offer the securities being registered to foreign investors and whether any permissions or approvals have
been denied. In this regard, we note that the company completed a cybersecurity review with CAC and completed the required filings
with CSRC.
In response to the Staff’s comment, the Company has
revised the disclosure on page 10 of the Registration Statement.
Corporate History and Structure, page 13
7. In the diagram of your corporate structure, revise to identify the person or entity that owns the equity in each depicted
entity. In this regard, we note that you have not identified the equity owner(s) for ZKH Group Limited. Also revise to identify clearly
the entity in which investors are purchasing their interest and the entities in which the company's operations are conducted. Lastly,
revise to discuss and disclose your dual-class structure to include the post-offering ownership and voting power percentages of the relevant
shareholder contingency groups, i.e. public shareholders versus Mr. Long Chen and the Management Shareholders.
In response to the Staff’s comment,
the Company has revised disclosure on pages 14 and 98 of the Registration Statement.
Risk Factors
The approval of the China Securities Regulatory Commission...,
page 61
8. We note that the heading of this risk factor suggests CSRC approval "may" be required in connection with this offering
and that you cannot predict whether you will obtain such approval, but the body of the risk factor states that approval is required and
that you have already received such approval. Revise for consistency, particularly focusing on future offerings.
In response to the Staff’s comment,
the Company has revised the disclosure on page 58 of the Registration Statement.
Critical Accounting Estimates
Fair Value of Our Ordinary Shares and Valuation of Our Ordinary
Shares, page 120
9. Please provide us with an analysis explaining the reasons for the differences between the recent valuations of your common stock
leading up to the initial public offering and the estimated offering price. In addition, please provide us with a quantitative
and qualitative analysis explaining the difference between the estimated offering price and the fair value of each equity issuance through
the date of effectiveness for the preceding twelve months.
IPO price range
The Company preliminarily estimates
a price range of US$15.50 and US$17.50 per ADS, equivalent to US$0.44 to US$0.50 per share (the “Preliminary Price Range”)
for its IPO. This represents an equity value of the Company of US$2,412 million to US$2,741 million.
4
U.S. Securities and Exchange Commission
December 8, 2023
Page 5
As is typical in IPOs,
the Preliminary Price Range was not derived using a formal determination of fair value, but was determined by discussions between the
Company and the underwriters. Among the factors that were considered in setting the Preliminary Price Range were the following:
·
the general conditions of the securities market and the recent market prices of, and the demand for, publicly-traded common stock of comparable companies;
·
the Company’s financial condition and prospects;
·
estimates of business potential and earnings prospects for the Company and the industry in which it operates;
·
recent performance of IPOs of generally comparable companies;
·
business developments impacting the Company; and
·
input received from the lead underwriters, including discussions among senior management of the Company, the Company’s Board of Directors (the “Board”) and representatives of the lead underwriters.
In determining the Preliminary
Price Range, the underwriters focused on a number of valuation methodologies to triangulate the valuation, including a discounted cash
flow analysis and relevant trading multiples.
The
Preliminary Price Range does not take into account the current lack of liquidity for the
Company’s common stock and assumes a successful IPO with no weighting attributed to any other outcome for the Company’s business,
such as remaining a privately held company or being sold in an acquisition transaction. The parameters of the Preliminary Price
Range will be subject to then-current market conditions, continuing discussions with the underwriters and any business developments impacting
the Company.
Historical fair value determination
As stated in the Registration Statement, share-based
compensation expense related to share options and restricted shares granted to employees and executives of the Company is measured at
the date of grant based on the fair value of the award. The Registration Statement describes the Company’s use of the binomial option-pricing
model for these purposes and describes and quantifies the significant assumptions used.
As there has been no public market for the ordinary
shares to date, the estimated fair value of the ordinary shares has been determined by the Company’s Board as of the date of each
share-based awards grant in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Practice
Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, and with the assistance of an independent third-party
valuation firm. A detailed description of the factors considered in the determination of the fair value of the Company’s ordinary
shares is set forth on pages 120 to 122 of the Amendment No.2 to Registration Statement on Form F-1.
5
U.S. Securities and Exchange Commission
December 8, 2023
Page 6
The following table summarizes share-based awards
granted during the 24 months prior to the date of this amended Registration Statement, and the estimated fair value of the Company’s
ordinary shares on each grant date determined using the income approach based on management’s estimates of the discounted cash
flows.
Grant date
Type of awards
No. of shares granted
Fair value per ordinary share
December 30, 2021
Restricted shares
100,000,000
RMB1.35 (US$0.21)
January 18, 2022
Share options
3,650,000
RMB1.35 (US$0.21)
February 1, 2022
Share options
34,760,697
RMB1.35 (US$0.21)
July 1, 2022
Share options
17,811,961
RMB1.40 (US$0.21)
January 18, 2023
Share options
2,806,516
RMB2.04 (US$0.30)
June 30, 2023
Share options
11,708,927
RMB2.33 (US$0.32)
December 1, 2023
Share options
66,392,000
Valuation in process*
*This is a subsequent event, and the valuation of the common stocks
is still in process, which will not impact the financial statements included in this filing.
The Company’s
most recent round of financing was Series F convertible note entered into in January 2022 in an aggregate principal amount of US$221.8
million and subsequently converted into 392,013,413 Series F convertible preferred shares at a conversion price of US$0.5659 per share
in October 2022. The Series F financing was considered to be an arms’-length transaction due to participation by certain unrelated
new investors. The Company, with the assistance of an independent third-party valuation firm, used back solve method to estimate
the business entity value based on the Series F transaction price. The business entity value was then allocated to each element of the
Company’s capital structure (convertible redeemable preferred shares and ordinary shares) using probability-weighted expected return
method and option pricing method. In the Company’s case, three scenarios were assumed, namely: (i) the liquidation scenario, in
which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, (ii) the redemption
scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares,
and (iii) the mandatory conversion scenario, in which equity value was allocated to convertible preferred shares and ordinary shares on
an as-if converted basis. Based on the above discussed method, the fair value of the ordinary shares was calculated to be RMB1.38 (US$0.21).
It was compared to the estimated fair value of the ordinary shares of RMB1.35 (US$0.21) from the discounted cash flow model as described
in the table above and the difference was considered not unreasonable.
Differences between the valuations of ordinary
shares as of December 30, 2021 to the mid-point of Preliminary Price Range for this offering
The