ARC Capital sells Shanghai supermarket group for $164.8M

ARC Capital Holdings Limited has sold its entire stake in Shanghai Jiadeli Supermarket to Shanghai Haihang Jiale Enterprise Management Co. Ltd in a deal with RMB1.1 billion (equivalent to US$164.8 million). The supermarket group is the third largest in Shanghai. ARC invested $89.1 million between January 2007 and August 2008. This is ARC’s first control investment to go full-cycle, from acquisition to sale.


ARC Capital Holdings Limited (“ARCH”) (AIM: ARCH), is pleased to announce that on 11 October 2010 it completed the sale of its entire stake in Shanghai Jiadeli Supermarket (“Jiadeli” or the “Company”) to Shanghai Haihang Jiale Enterprise Management Co. Ltd. The total consideration for the sale is expected to be RMB1.1 billion (equivalent to US$164.8 million), approximately US$5.7 million more than the 31 August 2010 carrying value of US$159.1 million. RMB100 million of the total consideration will be held back by the buyer with payment subject to completion of a post closing audit. The sale, including the holdback, represents a 1.9x cash multiple and an IRR of 25.7%.

Established in 1998 as a traditional mid-size supermarket chain, the Company has grown to become the third largest supermarket network in Shanghai operating 150 stores. ARCH invested a total of US$89.1 million in tranches between January 2007 and August 2008. Since ARCH took over the Company, the Manager’s retail operations team implemented a development strategy which dramatically improved operating efficiency and profitability resulting in EBITDA growth of 65% and net profit growth of 171% during 2009.

The transaction is the first control investment in ARCH’s portfolio to have completed a full buyout cycle, from acquisition to operational transformation and ultimately ending in a successful sale. Allan Liu, Managing Partner of ARC Capital Partners Limited, the Manager of ARCH commented: “Through the insertion of key management professionals and the deployment of ARCH’s deep knowledge and expertise in the China consumer retail industry, we were able to rapidly accelerate the development of Jiadeli into one of Shanghai’s leading supermarket
chains, creating value for the Company. The sale at this time generated an optimal return for shareholders and realises the value of ARCH’s investment of time, expertise and capital.”

As realisation proceeds are in RMB, it could take up to six months for repatriation due to foreign exchange controls in China. As and when the funds are available to ARCH, they will be applied in accordance with the guidelines announced on 1 April 2009, namely to use substantially all proceeds (in the form of principal and profits) from realisations to fund distributions to shareholders through share buy-backs, tender offers or capital distributions, subject to serving payables and funding contractual follow-on commitments to existing portfolio companies.

In accordance with the guidelines, ARCH will continue to withhold from making any new investments until the Independent Directors determine otherwise. The Independent Directors will determine (i) whether to approve funds to be used to make follow-on investments; and (ii) when new investments may be made. In making these determinations, the Independent Directors will have regard to the alternative use of funds in effecting shareholder distributions, including the
potential short-term increase in NAV per share that may result from share buybacks.

A further announcement will be made in due course as to the method, extent and timing, if any, of distributions to shareholders.