Bloomberg News

Tiger Global, GIC Buying in Sun Art’s $1 Billion Share Sale

June 28, 2011

(Updates with analyst comment in fourth paragraph.)

June 28 (Bloomberg) -- Sun Art Retail Group Ltd., the Chinese hypermarket operator backed by France’s Groupe Auchan SA, plans to raise as much as HK$8.2 billion ($1.1 billion) in a Hong Kong initial public offering.

The Shanghai-based company, which counts Wal-Mart Stores Inc. among its competitors, plans to sell 1.14 billion new shares for HK$5.65 to HK$7.20 each, according to a sales document obtained yesterday by Bloomberg News. About half the stock will go to nine so-called cornerstone investors, including Government of Singapore Investment Corp. and Tiger Global Management LLC, which agreed to invest $40 million each.

Sun Art is pressing ahead with its offering even after a slump in the benchmark Hang Seng Index prompted at least four companies to cancel Hong Kong IPOs this month, data compiled by Bloomberg show. Casual-wear retailer China Outfitters Holdings Ltd. withdrew a proposed offering yesterday, citing market conditions. The Hang Seng Index is down 7 percent so far in June, headed for its worst monthly performance since January 2010.

“China’s consumer market is a red-hot topic among overseas investors,” said Chang Dongliang, an analyst with Everbright Securities Co. in Shanghai. “Sun Art is especially attractive for its capability to control cost and to maintain profitably with new stores.”

Debt Repayment

At the high end of its offering price range, Sun Art’s shares would be valued at 31.5 times estimated 2011 earnings, according to one of the banks arranging the sale. Hong Kong- listed Wumart Stores Inc. and Lianhua Supermarket Holdings Co., which run hypermarkets, supermarkets and convenience stores in China, trade at 30 times and 20 times projected full-year profit respectively, according to Bloomberg data.

Sun Art is the largest hypermarket operator in China, with a 12% share of sales last year, according to a research note by Morgan Stanley, which is one of the banks arranging the IPO. That puts it ahead of Wal-Mart, state-backed China Resources Enterprise Ltd. and Carrefour SA, Morgan Stanley estimated.

The retailer plans to use about half of the IPO proceeds to open new outlets in China and 30 percent to repay bank loans, according to a sales document. The company began meeting institutional investors today and plans to set a final price on July 7 and start trading on July 15, the document showed.

Auchan, Ruentex

Sun Art made a profit of 1 billion yuan ($155 million) last year on sales of 56.2 billion yuan, and unaudited first- quarter profit surged 32 percent to 522 million yuan while sales grew 27 percent, according to a June 20 filing to Hong Kong’s stock exchange.

Group Auchan is among the company’s “ultimate controlling shareholders”, Sun Art said in the filing. The filing doesn’t reveal how big Group Auchan’s stake in Sun Art is. Ruentex Development Co. and Ruentex Industries Ltd., both listed in Taiwan, are also among Sun Art’s shareholders, the filing shows.

Citigroup Inc., HSBC Holdings Plc and UBS AG are managing Sun Art’s offering as global coordinators. BNP Paribas SA, China International Capital Corp., Goldman Sachs Group Inc. and Morgan Stanley are also arranging the IPO as joint bookrunners, people with knowledge of the transaction said this month.

--With assistance from Fox Hu in Hong Kong, and Michael Wei and Nicholas Wadhams in Shanghai. Editors: Mohammed Hadi, Frank Longid

To contact the reporter on this story: Zijing Wu in London at zwu17@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net


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