South Beauty chain may be eyeing listing in HK

PUBLISHED : Saturday, 09 July, 2011, 12:00am
UPDATED : Saturday, 09 July, 2011, 12:00am


Beijing-based restaurant chain South Beauty Company may seek an initial public offering in Hong Kong next year after the mainland securities watchdog shelved its application to list in Shenzhen under tightened IPO requirements.

South Beauty had started to revise its fund-raising plan to pursue a Hong Kong listing next year, Thomson Reuters unit IFR Markets said late on Thursday, and that UBS Securities would be its global co-ordinator for the IPO campaign.

The operator of more than 50 upscale Chinese restaurants filed its listing application to the China Securities Regulatory Commission in March. But CSRC had recently tightened approval requirements for IPOs from companies in industries perceived as having a high risk of financial irregularities, including restaurants and chain stores, Reuters said.

A spokeswoman for South Beauty refused to comment on the news.

An analyst with DBS Vickers Securities, who asked not to be named, said the accounting practices of mainland restaurants were often murky and the risk of them reporting fake financial figures was high.

'Restaurants usually do not offer invoices to customers unless people ask for them,' he said. 'So outsiders can hardly get a clear idea about how they performed.'

First Capital Securities analyst Feng Jia said most restaurants were run by private companies and many had loopholes in their internal management systems.

Compared to fast-food companies, it was harder for traditional restaurants such as South Beauty to raise funds in the capital market because it was more difficult to calculate sales revenue and profit, she said.

Only two chains- Quanjude, which is known for Peking duck dishes, and upscale restaurant operator X.E.Flavour - have listed in the mainland's A-share market. In Hong Kong, local firms Cafe de Coral and Fairwood and mainland-based hotpot business Little Sheep are among the few listed restaurant chains.

About two months ago, the CSRC raised the bar for annual profits for restaurant operators seeking IPOs to 50 million yuan (HK$60 million) from 30 million yuan.

'The CSRC is mulling new rules on restaurant IPOs, but we don't know when this will be completed,' IFR said, quoting one of its sources. 'During this period, a growing number of restaurant operators may have to turn to overseas markets.'

Besides South Beauty, Cantonese-cuisine establishments Shunfeng Group and Guangzhou Restaurant and several others also applied to CSRC early this year for listings. They have yet to receive approval.