Sun Art Retail Group Ltd., the Chinese hypermarket operator backed by France’s Group Auchan SA, began gauging investor demand today for an initial public offering that may raise about $1 billion, two people with knowledge of the matter said.
The Shanghai-based company plans to set a final price for its shares on July 7 and start trading in Hong Kong on July 15, said the people, who declined to be identified because the information is private. Citigroup Inc. (C), HSBC Holdings Plc (HSBA) and UBS AG (UBSN) are managing the offering as global coordinators, the people said.
Sun Art, which said it has a bigger market share in China than Wal-Mart Stores Inc., kicks off its offering after other companies seeking to raise funds in Hong Kong have struggled. MGM China Holdings Ltd. (2282) was the only one of five Hong Kong IPOs greater than $1 billion this year to have shares priced at the top end of the marketed range. The casino company has lost 14 percent since it started trading on June 3.
Investors could be drawn to Sun Art’s offering because of its status as China’s biggest hypermarket retailer, said Chang Dongliang, a Shanghai-based retailing analyst with Everbright Securities Co. Sun Art could fetch a price-to-earnings valuation similar to Hong Kong-listed Wumart Stores Inc., he said.
Wumart operates supermarkets and convenience stores in Beijing, Tianjin and Hebei and trades at 27 times analysts’ estimated earnings, according to data compiled by Bloomberg.
BNP Paribas SA, China International Capital Corp., Goldman Sachs Group Inc. (GS) and Morgan Stanley are also arranging the IPO as joint bookrunners, people familiar with the matter said.
Sun Art forecast 2011 profit won’t be less than 1.4 billion yuan ($216 million), according to its filing to the Hong Kong stock exchange today.
The retailer plans to use about half of the IPO proceeds to open new outlets in China and 30 percent to repay bank loans, the people said. Sun Art said in the filing that it has the biggest market share among hypermarket operators in China, where it also competes against Carrefour SA (CA), Tesco Plc, and state-backed China Resources Enterprise Ltd. (291)
“With the funds collected, the company may be able to speed up its expansion and widen its gap with rivals,” Everbright’s Chang said.
Group Auchan is among the company’s “ultimate controlling shareholders”, Sun Art said in the filing. The filing doesn’t reveal how big Group Auchan’s stake in Sun Art is. Ruentex Development Co. (9945) and Ruentex Industries Ltd. (2915), both listed in Taiwan, are also among Sun Art’s shareholders, the filing shows.
Officials at Sun Art couldn’t immediately be reached to comment. Meng Fan-wen, Ruentex Industries Ltd’s spokesman, said all the information the company can disclose is in the stock exchange filing.
Sun Art’s profit was 1 billion yuan ($154.5 million) last year on sales of 56.2 billion yuan, the filing shows. Unaudited first-quarter profit surged 32 percent to 522 million yuan while sales grew 27 percent to 19.8 billion yuan.
Wal-Mart, the world’s biggest listed company by sales, has annual revenue of $7.5 billion in China, Scott Price, its chief executive officer for Asia, said in March. The Bentonville, Arkansas-based retailer may buy more land in China, which it said may be the world’s largest grocery market by 2014.
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