China's privately owned firms may find it harder to convince local investors A 20 yuan (HK$18.74) bottle of rice liquor, a 21-inch colour flat-screen television for 999 yuan, a Siemens mobile for 488 yuan and a Beijing office block. Those are some of the products sold by a private company that plans to list in Hong Kong later this year - Guo Mei, a discount chain that is the biggest retailer of electrical appliances in China. Buying Guo Mei shares not only means betting on the future of its cut-price microwave ovens and colour TVs but a punt on its owner, 33-year-old Huang Guangyu. According to Forbes magazine, Mr Huang was the 27th richest person in the mainland last year with personal wealth of US$195 million. But after their experiences with Yang Bin's Euro-Asia Agricultural (Holdings) and several similar firms, are Hong Kong investors losing interest in privately owned mainland companies? Since the firm is likely to list only a minority of its shares, the investor will be entrusting his money to Mr Huang, whose empire includes two other listed companies. One is China Eagle Group, a Beijing property company and Mr Huang's flagship. Its shares closed yesterday 0.58 per cent weaker at 16.9 cents. The other is Ningcheng Laojiao, a maker of rice liquor based in Chifeng, Inner Mongolia, and one of 56 stocks labelled ST (special treatment) on the Shanghai market. It ended 2.18 per cent firmer at 5.60 yuan. The ST designation means the company is in financial trouble. Mr Huang wants to list Guo Mei because he needs money to fund an ambitious plan to double the number of stores from 100 at the end of last year to 200 by the end of this year. He hopes to raise between HK$800 million and $1.5 billion from the listing. A broker at Haitong Securities said Guo Mei was under financial pressure. 'Competition is intensifying from domestic and foreign rivals, like Wal-Mart and Carrefour,' he said. '[Guo Mei] wants to double the number of its stores and, at an average of eight million yuan a store. That means it needs 800 million yuan. Discount stores are highly dependent on cash flow, since their profit margins are so thin.' The broker said China Eagle did not have capital available to help Guo Mei as it needed cash itself to develop a 35,000 square metre site in Beijing's Chaoyang area - part of the capital's central business district, while Ningcheng was in financial trouble itself. China Eagle's Beijing assets include an office building, a five-star hotel and an upmarket residential complex. Mr Huang's purchase last November of 71.1 per cent of Ningcheng from the state asset management bureau puzzled brokers. It lost money for the past two years and is believed to have debts of 80 million yuan. Of the 12 listed rice liquor firms, 10 lost money last year after the government discouraged consumption by enforcing high taxes and encouraged people to drink beer and wine. Mr Huang has sent five top managers from Guo Mei to run the liquor firm but has not put in new money. He insists he wants to make liquor one of the core businesses of his group but brokers wonder if it was a listed vehicle that he wanted rather than its operations. Mr Huang's is a rags-to-riches story. In 1987, he left Shantou with his elder brother Junqin, and 4,000 yuan to make their fortune. In 1988, they took over a small retail store in Beijing that belonged to a state factory but found clothes did not sell well and switched to electrical appliances. He soon struck lucky - it was the era in which colour TVs and air-conditioners were sought by Chinese consumers for the first time. He expanded his stores all over Beijing and later in cities in the Yangtze and Pearl River deltas. He plans to open two outlets in Hong Kong in the next two months to raise his profile ahead of the listing.