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China’s Richest Man Benefits From Thirst for Soft Drinks

Hangzhou Wahaha Group Chairman Zong Qinghou
Zong Qinghou, chairman of Hangzhou Wahaha Group Co. Photographer: Nelson Ching/Bloomberg

Zong Qinghou, head of China’s third-largest beverage maker, is the country’s richest man after disclosing his stake in closely held Hangzhou Wahaha Group Co. is more than double previous estimates.

The 66-year-old soda and juice tycoon owns more than 80 percent of Wahaha, the company’s spokesman Shan Qining said in an interview on Sept. 3. That stake elevates Zong’s net worth to $21.6 billion, according to the Bloomberg Billionaires Index. He is now $13.4 billion wealthier than Robin Li, founder of the nation’s biggest search engine.

Zong, a chain-smoking member of the Chinese legislature who says he spends just $20 a day, ranks No. 23 globally and trails only Li Ka-Shing and Mukesh Ambani in Asia. Baidu Inc. Chairman Li’s net worth has dropped 3.8 percent year-to-date.

Wahaha has benefited from decades of rapid economic growth in China. The company has about 60 factories in 29 provinces across the country, making soda, food and baby formula, as well as children’s apparel, its website shows.

“Zong has made himself a billionaire by staying in the right industry, positioning Wahaha well and eventually seizing the opportunity of growth in smaller Chinese cities,” said Zhang Lu, an analyst at Capital Securities Corp. in Shanghai. “Given the fact that Wahaha is already a well-known brand domestically, disclosing his share and wealth would help to boost the global profile of both Wahaha and Zong himself.”

’Laughing Children’

Zong founded Wahaha, which means “laughing children” in Chinese, 25 years ago with two retired teachers and a $22,048 loan. It has a 7.2 percent share of China’s soft drink market, according to London-based researcher Euromonitor International. Coca-Cola dominates with a 16.8 percent share, followed by Hong Kong-listed Tingyi (Cayman Islands) Holding Co.

In 2011, Hangzhou, China-based Wahaha generated $11 billion in revenue and $1 billion in profit, Zong said in a March 2012 interview with Bloomberg News. The closely held operation may boost net income to $1.6 billion in 2012 on sales of $13.3 billion, helped by the Chinese government’s push to boost domestic consumption, he said.

The beverage maker’s valuation is derived using the average enterprise value-to-sales and price-to-earnings multiples of three publicly traded peers: Tingyi, Hebei Chengde Lolo and China Huiyuan Juice.

Based on an analysis of dividends, market performance and taxes, Zong has about $1.9 billion in cash and other liquid assets, according to data compiled by Bloomberg.

Baidu Falters

Baidu’s stock has declined about 23 percent on the Nasdaq since the end of the first quarter on concerns the most-popular search engine in China may face more competition from Qihoo 360 Technology Co., which started a new search tool on Aug. 16, Barclays analyst Alicia Yap said.

Kaiser Kuo, a Beijing-based spokesman for Baidu, declined to comment.

Zong’s net worth change shows the opacity of wealth in China, where disclosure requirements are less transparent than in countries such as the U.S.

The Bloomberg Billionaires Index takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York and listed in U.S. dollars at current exchange rates.

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