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China Paradise to Use HK Listing Cash to Expand

China Paradise Electronics Retail Ltd, the mainland's third-largest white goods retailer, is expected to raise US$131.5 million through an initial public offering (IPO) in Hong Kong, sources say.


The Shanghai-based firm, also known as Yongle Electronics, is said to have priced its IPO shares at HK$2.25 (29 US cents), at nearly the top of an indicative range of HK$1.9 (24 US cents) to HK$2.3 each.


It sold 455.8 million shares during the offering that ended last Friday.


The offering, sponsored by Morgan Stanley and Cazenove, valued the company at 16.3 times expected earnings for 2005, with the retail tranche of shares oversubscribed by 130 times.


"It's not a surprise that China Paradise has become an investment darling," said Andes Cheng, an analyst from South China Research Ltd. "Mainland consumption stocks have been favoured by local investors over the past two years.


"China's consumer market is booming at such a blistering pace that nobody can neglect its potential," said Cheng, adding that more and more mainlanders are both willing and able to spend, as both their income and consumption confidence increases.


The IPO will help China Paradise expand its network throughout China to give it a better position in competition with other domestic giants and overseas players.


According to the company's prospectus, HK$350 million (US$44.9 million) to HK$400 million (US$51.3 million), or half of the money it will raise, will be used to open more stores.


An additional HK$150 million (US$19.2 million) will be used to merge with and acquire other retailers.


By the end of June this year, China Paradise operated 121 stores in 49 cities.


It plans to add 68 stores this year, the company said.


Hong Kong-listed and Beijing-based Gome, China's largest retailer of electronics goods, has a stronghold in North China.


Nanjing-based Suning, the second-largest, and China Paradise are strong in East China.


The trio had a combined market share of 8 percent in 2004.


However, Gome and Suning have stepped out of their traditional markets to try to compete with China Paradise in an apparent attempt to spread throughout the country.


Gome plans to open 800 to 1,000 outlets nationwide in the next three years.


Suning also has established itself in major Chinese cities.


"As rivals are galloping ahead, China Paradise has to catch up," said Cheng. "In this sense, the IPO is a shot on the arm."


Shares in Gome have lost 27 percent so far this year, while Suning stock has jumped more than 47 percent.


China Paradise will start to trade its shares on Friday.


(China Daily October 12, 2005)


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