Li & Fung eyes US$1b in retail unit spin-off
Wong Ka-chun and Tim LeeMaster
Family-owned group plans HK initial public offering this year
The family of Li & Fung Group, owner of Hong Kong's listed blue-chip retail supplier, plans to raise about US$1 billion by spinning off its privately owned mainland and Asia-Pacific retail business in an initial public offering in Hong Kong later this year, according to market sources.
An 'A1 form', or preliminary listing application, was filed with the stock exchange before the Lunar New Year and JP Morgan had been mandated to arrange the sale, sources said. The bank declined to comment.
Li & Fung Group, the parent of Hong Kong-listed Li & Fung, is owned by the Fung family. William Fung Kwok-lun is the managing director of the listed company and his older brother, Victor Fung Kwok-king, is the non-executive chairman. Unlisted assets include Toys 'R' Us and the family holding company owns the right to expand into the mainland south of the Yangtze River. It opened its first mainland outlet in Shanghai in late 2006 in an attempt to tap into the country's booming consumer market.
The nation's per capita gross domestic product went over US$2,000 two years ago, a trigger point at which private consumption becomes a key driver of a national economy.
A Credit Suisse consumer survey released this month of more than 2,000 mainlanders showed that personal income had grown 20 per cent since 2005 and those surveyed expected it to grow another 20 per cent over the next three years.
Last year, William Fung said Toys 'R' Us was mature enough to seek a separate listing and he hoped to do so within a year or two. In addition to the mainland store, Li & Fung has 49 Toys 'R' Us outlets across Asia including eight in Hong Kong.
Branded Lifestyle is another privately held business under the retail division. The unit represents brands such as Calvin Klein Jeans, women's wear retailer Mango and beachwear retailer Billabong in Asia-Pacific.
Branded Lifestyle operates retail outlets in Greater China, South Korea, Singapore, Malaysia, Thailand and Indonesia.
Li & Fung spun off its Circle K convenience store business in Hong Kong in 2001 under the name of Convenience Retail Asia.
It also spun off its logistics business called Integrated Distribution Services in 2004.
Li & Fung's retailing unit had an annual turnover of US$700 million in 2006, according to its website. The division has 950 outlets across Asia.
Companies are eager to seek separate listings for robust retail businesses, in the hopes of unlocking unrealised value, but a volatile stock market has made initial public offerings a tough sell to investors. 'It's really only the best of the breeds that will succeed,' said one retail and consumer banker.
Yue Yuen Holdings, the largest manufacturer of branded athletic and casual footwear in the world, is also in the process of spinning off its mainland retail business and hopes to raise as much as US$1.5 billion in a deal that could take place as early as the end of June.