Buyout firm Carlyle targets Kaiyuan Group

PUBLISHED : Friday, 06 July, 2007, 12:00am
UPDATED : Friday, 06 July, 2007, 12:00am

US investor to infuse less than US$100m into hotel management company, sources say

US buyout firm Carlyle Group plans to invest less than US$100 million in mainland hotel management company Kaiyuan Group, sources said.

Carlyle declined to comment. An assistant to Kaiyuan president Chen Miaolin said he had no knowledge of the deal.

Kaiyuan Group was looking to introduce a strategic investor that would take an up to 40 per cent stake in the company by investing as much as one billion yuan, Mr Chen told Hangzhou's Youth Times newspaper in February.

Kaiyuan scrapped an initial public offering in Hong Kong in 2005, according to a report at that time in the China Business News citing Mr Chen.

Mr Chen said the company planned to sell 80 million shares to raise 200 million to 300 million yuan. However, new accounting rules implemented in Hong Kong in 2004 weakened the company's financial status, making an offering more difficult.

Under the new rules, Kaiyuan's net profit at the end of 2005 would drop to 18 million yuan from an expected 60 million yuan, he said.

Kaiyuan plans to open five hotels a year over the next five years and hopes to increase the total number of hotels in operation to 30 by 2010, Mr Chen told the Hangzhou paper.

Kaiyuan opened three new hotels last year, bringing to 19 the number of hotels it manages and those under construction. Fourteen were in Zhejiang province.

Hotels in Kaiyuan's chain are mainly built and owned by the group but the company is considering a plan to increase franchising of its brand.

Hotel operators and managers are proving popular among global private equity companies. The largest deal to date was announced this week when Blackstone Group agreed to pay US$20 billion for Hilton Hotels Corp.

Even so, acquisitions in the mainland have become more difficult to finalise as Beijing tightens scrutiny of big foreign purchases of state assets.

Carlyle's bid to buy a stake in Chongqing City Commercial Bank was blocked this year by the China Banking Regulatory Commission. The regulator said Carlyle did not meet relevant rules and regulations.

Carlyle's US$375 million proposed takeover of Xugong Construction Machinery, the mainland's biggest maker of construction machines, stalled last year amid concerns that an industry leader was about to fall into the hands of foreign investors. The firm agreed to lower its stake to 45 per cent but the deal still has not been finalised.

Carlyle and partner Prudential Financial received approval from mainland regulators in the first quarter to swap their combined 25 per cent stake in China Pacific Life Insurance into the parent firm.

Carlyle and Prudential paid 3.3 billion yuan for the stake in December 2005 after three years of talks.

Private equity investment in the mainland reached US$7.3 billion last year, more than double the total in 2005. The figure for January to May this year was US$2.1 billion, according to the Centre for Asia Private Equity Research.