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US private equity firm to pay US$300m for  up to 49pc interest in Beijing's best-known retailer

United States private equity firm Warburg Pincus will pay the Beijing city government about US$300 million for a stake of as much as 49 per cent in Wangfujing Department Stores, one of the capital's best-known retailers, sources said.

'Warburg is definitely going ahead with the deal,' said a source involved in the bid.

Two rival bidders - Washington-based buyout firm Carlyle Group and Legend Capital, an investment subsidiary of Legend Holdings - dropped out of the bidding for a non-controlling stake in the chain, whose flagship store is on Wangfujing Street, sources said.

Warburg Pincus declined to comment.

The purchase still requires government approval, which has become more complicated and time-consuming in recent months as a tide of economic nationalism led officials to clamp down on foreign purchases of mainland assets.

'Negotiations are getting very tough because of the political and media environment in China at the moment,' one private equity fund manager said.

Warburg's deal may have an easier time clearing these hurdles than other deals, notably Carlyle's attempts to buy a controlling stake in Xugong Construction Machinery, because Beijing does not regard retailing as a strategic industry.

Wangfujing, which was established in 1955 as Beijing's main department store, sold shares in Shanghai in 1994. Although it enjoys a strong brand name, the company needs more capital for expansion.

'China's state-owned retail sector is trying desperately to reform and rapidly expand in the face of an onslaught of foreign competition,' said Nick Debnam, KPMG's partner in charge of consumer markets in China.

International retail powerhouses including Wal-Mart of the US and France's Carrefour already hold dominant positions in the mega-store part of the mainland market, less than two years after the industry was fully opened to foreign investment at the end of 2004.

Hong Kong-listed conglomerate Beijing Enterprises Holdings owns 50.13 per cent of Wangfujing, but earlier agreed to sell the shares to its unlisted parent company for HK$971 million as part of its strategy to sell non-core businesses. The disposal was approved by minority shareholders of the Beijing municipal government-controlled firm, although it still awaits regulatory approval.

Wangfujing saw first-half net profit this year more than double to 76.4 million yuan from 35.6 million yuan a year earlier on  rising sales. Turnover was 3.02 billion yuan.

The retailer runs 15 medium-sized to large department stores in cities across China, including Guangzhou, Wuhan and Chengdu. It also has interests in property, securities trading and import-export trading.

Wangfujing's shares closed at 15.47 yuan in Shanghai yesterday. They have more than trebled  this year on speculation that the firm would bring in foreign investors in order to secure additional capital.



Warburg buys into Wangfujing Stores