Five Star follows rivals in $500m IPO
Five Star Appliance is likely to be the third Chinese electrical goods retailer to list in Hong Kong as fierce competition in the mainland market forces companies to seek funds for expansion.
According to market sources, Five Star plans to raise at least $500 million through an initial public offering early next year. CLSA has been named as the listing sponsor. The move will see China's fourth-largest electrical appliance retailer follow in the footsteps of Gome Electrical Appliance and Yongle Electronics.
'The funds raised will be mainly used to open new stores in eastern China, penetrating second and third-tier towns in Jiangsu and neighbouring provinces, where competition is weaker and the market underserved,' a source said.
Jiangsu-based Five Star said earlier this year that it planned to open 122 new stores by the end of the year. It has 48 at present, mainly in Jiangsu, Shandong, Zhejiang, Anhui and Sichuan.
Sources said the company would undergo an equity private placement before going public and that it hoped to sell no more than a 30 per cent stake in all.
In June, Five Star announced that International Finance Corp had become a pre-IPO investor, paying up to US$7 million for a stake in the company.
Chairman Wang Jianguo owns a 32 per cent stake and other senior managers hold 48 per cent.
Founded in December 1998, Five Star has experienced rapid growth in the past few years. Annual sales reached five billion yuan last year, up from 3.2 billion yuan in 2002, representing a 54.6 per cent increase. In the first six months of this year, Five Star's turnover climbed to 7.3 billion yuan.
Meanwhile, Yongle Electronics plans to raise between US$200 million and US$300 million in its Hong Kong listing, which is expected within the next two months.
Gome Electrical Appliances, the mainland's largest electrical goods retailer, which gained a backdoor listing in Hong Kong more than a year ago, posted a 4.48 per cent rise in net profit to $224.21 million for the first six months, but net profit margin fell to 4.48 per cent from 5.51 per cent a year earlier.
The company said it would open 74 new stores in the second half of the year, giving it 270 retail outlets by December.
'Opening new stores is the only way for mainland home electrical appliance retailers to grasp market share and maintain profit margin through economies of scale, forcing them to turn to capital markets for funds,' Tai Fook Securities senior analyst Edward Cheung said.
