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Carlyle Buys Controlling Stake in China’s Mandarin Hotel Chain

Carlyle Group LP, the world’s second-largest private-equity firm, acquired a controlling stake of 49 percent in China’s Mandarin Hotel Holdings Ltd. to tap the country’s mid-tier hotel market.

Carlyle Asia Partners III, a buyout fund with $2.6 billion, will be the largest shareholder of the closely held hotel chain, it said in a statement today. The Washington-based firm didn’t give the amount of the investment.

“We see good potential in the mid-tier hotel sector, which is less volatile, as luxury travelers tend to trend down when the economy isn’t good,” Eric Zhang, managing director of the Carlyle fund, said in a phone interview from Hong Kong today. “We are now one of the first movers in the mid-end hotel sector, and we are very confident it will be the leader of the sector in the future.”

International five-star hotel operators, including Marriott International Inc. and Hilton Worldwide Inc., have been expanding in China, the world’s third-largest tourism destination.

Carlyle has spent about $4 billion in more than 60 deals in China. In 2007 it invested in New Century, China’s second-largest hotel group that develops luxury hotels in less affluent cities, Zhang said.

Zhang said revenue growth of China’s mid-tier hotels is expected to be in the mid-teens in the next three to five years.

Mandarin, which operates 25 hotels in six Chinese cities, owns the Crystal Orange Hotel and Orange Hotel brands. It plans to open its first hotel in Shanghai by the end of the year, said Wu Hai, founder and chief executive officer of Mandarin, in a phone interview.

“With this kind of fund, we can expand to other cities, especially those well-developed,” Wu said. The hotel doesn’t have a plan to go public, according to Wu. Occupancy rates of Mandarin’s hotels have stayed “far above” the industry average, he said.

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