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Bear Stearns and GOME bet big on China
retail
Bear Stearns and the founder of GOME
create a $500 million fund to invest in growing businesses in China's retail
sector.
US investment bank Bear Stearns and Eagle
Investment Group, an investment company of the GOME group, have announced a
strategic investment alliance to focus on opportunities in the retail sector
in China.
Bear Stearns’ private equity arm, Bear
Stearns Merchant Banking (BSMB), will work with the 50:50 joint venture.
Each partner will contribute $250 million of capital to the fund, which will
be deployed in retail businesses in China, helping them to expand both
domestically and beyond China. Bear Stearns representatives told press
typical investment size would be in the $25 million-$100 million range and
further capital raising could be considered, once the initial commitment is
deployed.
Eagle Investment is a closely held
company chaired by Wong Kwong Yu, founder of Hong Kong listed GOME
Electrical Group. Wong is one of China’s richest men. He is
self-made, having established GOME in 1987 and building it one of China’s
largest electronics retailers. GOME is today the largest retail business
listed on the Hong Kong Stock Exchange and a constituent of the MSCI China
Index.
BSMB manages around $5 billion of funds.
Since it was founded in 1997, it has invested in more than 50 companies
including Aeropostale, Balducci’s, New York & Company, Seven for All
Mankind, Stuart Weitzman and Vitamin Shoppe Industries in the retail sector.
In April 2006, Wong sold $160 million of
stock in GOME to meet free float requirements, reducing his stake in the
company from 75.67% to 69.6%. The sale was well-timed, coinciding with a
rally in the Hong Kong index to an all-time high. There was good appetite
for the stock, illustrating that investors seem to share Wong's conviction
that China’s retail sector is set to continue booming.
In July last year, Wong then merged China
Paradise’s network of 205 stores into GOME’s 296 and created a
leadership position in the retail sector. He has now committed to injecting
the home appliance stores he owns into the listed entity by 2011.
“Bear Stearns Merchant Banking will
contribute to Eagle’s success in China”, says Wong, drawing attention to
the combination of the US private equity firm’s experience in the retail
sector and his own retail China-centric experience. Wong told press he was
bullish on opportunities in China’s second-tier cities and the rural
market. He also clarified that the fund would not invest in GOME or in home
electrical appliances companies.
China has become the world’s second
largest economy in terms of purchasing power parity and is registering
strong annual GDP growth. The country’s 1.3 billion strong population and
growing purchasing power have made investors bullish on the retail sector.
In February, Wal-Mart acquired the Trust-mart chain of 101 hypermarkets in a
deal estimated to be worth $1 billion. Other international retailers
investing in China include Carrefour, Auchan, Watson, Tesco and Metro.
But simultaneously, local entrepreneurs
like Wong are waking up to the opportunities that lie beyond the obvious
metros and big cities. A large percentage of China's population resides in
the smaller towns and cities where the opportunity for organised retail is
huge. If the retail experience of Bear Stearns and Eagle gives them a
competitive edge in identifying who tomorrow’s winners will be, the fund
is set for success. - By
Sameera Anand ASIA
FINANCE 21 March 2007
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