TPG Buying 11% Stake in Chinese Retailer

HONG KONG (Reuters) – Wumart Stores Inc (8277.HK) said on Wednesday it will sell an 11 percent stake to U.S. private equity firm TPG and a Chinese investor for HK$1.65 billion ($213 million), the latest sign of foreign interest in China’s fast-growing retail sector.

Wumart said it would sell the stake by issuing Hong Kong-listed H-shares and domestic shares to TPG and Hony Capital, an investment arm of the parent of top China PC maker, Lenovo (0992.HK).

Under the plan, Wumart will issue 84.55 million H-shares to TPG Asia and another 15.45 million to Hony affiliate Fit Sports Ltd at HK$11 per share, a 9.84 percent discount to the price of HK$12.20 at midday.

Wumart will also issue 41.52 million domestic shares to Hony Capital and 8.48 million domestic shares to Lenovo-affiliated Legend Holdings Ltd for 485 million yuan ($71 million), including an arrangement fee.

Wumart, which has a retail network of 424 stores comprising 107 superstores and 317 mini-marts, said the shares are subject to a 12 month lock-up period, and it would use the funds for store expansion and acquisitions. “The investors are experienced partners to entrepreneurs and growth companies, and each has a successful track record of investments in the PRC,” chairman Wu Jianzhong said in the statement.

Additionally, Wumart said it would seek a listing within three years in China, which is preparing new rules to allow overseas incorporated companies to list on its two stock exchanges.

It has appointed Credit Suisse as its financial adviser.

The deal reflects recent growing interest by global investors in China’s fast-growing retail sector.

TPG said in May it would buy 550 million yuan ($80.5 million) worth of convertible bonds with warrants in Chinese shoe retailer Daphne International Holdings (0210.HK). [ID:nHKG209915]. And last month, Bain Capital bought a minority stake in domestic electrical appliances retailer GOME (0493.HK). [ID:nHKG70961]

Wumart on Tuesday posted a 21.6 percent rise in first half profit to 233.16 million yuan ($34 million), and recorded a 3.5 percent increase in comparable store sales during the January-June period. It said it would step up with the expansion of its retail network through organic growth and acquisition.

Wumart opened five new directly-owned superstores and 12 directly-owned mini-marts during the first half period.

Shares of the company rose 6.46 percent to HK$12.18 on Wednesday after reports first surfaced about the stake sale, outperforming a 2.85 percent fall in the broader market .HSI. (US$1=HK$7.75=6.835 yuan)

By Donny Kwok
(Editing by Doug Young)