CDH Investments Said to Lead Buyout of Shoe Retailer Belle

Updated on
  • CDH working with company management on the privatization
  • Belle shares halted trading ahead of takeover announcement

CDH Investments Fund Management Co. is working with the management of Chinese shoe retailer Belle International Holdings Ltd. on a potential buyout that could be the largest-ever such deal for a Hong Kong-listed consumer company, people with knowledge of the matter said.

An announcement could come as early as this week, said one of the people, who asked not to be identified because the information is private. Shares of Belle International, China’s biggest women’s footwear retailer, were halted on Tuesday pending an announcement related to Hong Kong’s takeovers and mergers code, the company said in an exchange filing.

Belle, which sells shoes under brands such as Teenmix, Millie’s and Mirabell, had a market value of $5.7 billion before the stock suspension. A deal of that size would be the biggest-ever buyout of a consumer company listed in the city, according to data compiled by Bloomberg.

The shoe company, which operates more than 20,000 retail outlets mostly in mainland China, has struggled in recent years as shoppers turned to e-commerce for the affordable fashion footwear it sells. China’s $55 billion fragmented footwear market is dominated by sports apparel brands, with Belle the only retailer among the top five that sells mostly fashion shoes.

“They don’t have a strong brand and consumers are not willing to pay a premium without a strong brand since they have online options,” said Chelsey Tam, an analyst at Morningstar Investment Services in Hong Kong. “While the sportswear market is growing and they have distribution deals with the major sportswear brands, margins are low in that business.”

The Shenzhen-based firm’s stock has risen about 21 percent this year, although the last closing price of HK$5.27 is 15 percent lower than its 2007 IPO. A representative for Belle declined to comment, while a representative for CDH didn’t immediately respond to requests for comment.

CDH Investments, established in 2002 by former China International Capital Corp. dealmakers, invested in Belle International before the shoe company’s IPO, its website shows. CDH Managing Director Hu Xiaoling is also a non-executive director of Belle International, according to the retailer’s latest annual report.

In addition, CDH and the shoe seller both invested in apparel retailer Baroque Japan Ltd. in 2013, according to data compiled by Bloomberg.

Largest Shareholders

CDH, with $17 billion of assets at end of last year, has invested in several consumer companies including Chinese home appliances maker Midea Group Co. and Hong Kong jewelry retailer Tse Sui Luen Jewellery International Ltd., its website shows.

Merry Century Investments Ltd., controlled by Tang Yiu and Tang Wai Lam, is Belle International’s largest shareholder with a 21 percent stake, exchange filings show. Tang Wai Lam was chairman of Hong Kong-listed Mirabell International Holdings Ltd., which Belle International acquired in 2008.

Credit Suisse Trust Ltd., the second-largest shareholder, has about a 16 percent stake, according to exchange filings.

Belle forecast that profit for its financial year ended Feb. 28, 2017 would fall as much as 25 percent mainly due to the weak performance of the footwear business, while incurring a significant increase of expenses related to a share award scheme, according to an exchange filing last month.

The company posted net income of 2.9 billion yuan ($421 million) and revenue of 40.8 billion yuan in fiscal 2016. It had a net cash position of 6.9 billion yuan.

Belle said its footwear business “continued to be weak” and posted store sales decline of 6.2 percent in the fourth quarter, while the sportswear and apparel business showed store sales growth of 4.5 percent, according to the March 19 filing.

— With assistance by Daniela Wei, and Rachel Chang

(Updates with charts and analyst comments in fifth paragraph.)
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