RT-Mart China Said to Seek Up to $800 Million in Hong Kong IPO

By Cathy Chan and Wendy Leung

Reprinted from Bloomberg Businessweek

Brian Renwick of Boyden China provides his perspective to Bloomberg Businessweek on Chinese consumer preferences and on trends in executive hiring in the retail sector.

June 8 (Bloomberg) -- RT-Mart China, the country’s largest hypermarket chain by retail sales, may raise as much as $800 million in an initial public offering in Hong Kong, said two people familiar with the planned sale.

The retailer will mainly sell new shares in Hong Kong this year, said the people, who declined to be identified before a public announcement. RT-Mart last week invited investment banks to present proposals for the IPO, which may raise $600 million to $800 million, they said.

RT-Mart China, part-owned by French retailer Groupe Auchan SA, is expanding in the world’s most populous country, which Wal-Mart Stores Inc. last week identified as one of its “growth engines.” Carrefour SA last month said it will open more stores in China, where retail sales in April grew 18.5 percent after expanding 15.5 percent last year.

“RT-Mart will be a proxy stock for investors eyeing the China retail boom,” Chang Wanchen, an analyst at Masterlink Securities Advisory Co. in Taipei, said by phone. “The proceeds will be used for China expansion. The timing is quite good given that domestic consumption will play a big role in the economy.”

Chang has a “trading buy” recommendation on Ruentex Industries Ltd., a Taiwanese company that owns a stake in RT- Mart. Ruentex Industries gained 3.8 percent to NT$82.5 in Taipei trading, the biggest increase in two weeks and boosting its advance this year to 43.5 percent.

China’s Hypermarket Sales
RT-Mart China “may use the proceeds to buy land for its shops as it only owns 20 percent of its stores in China,” said Chloe Wu, a Hong Kong-based analyst at Fubon Securities Co.

About 11 percent of retail sales last year in China’s hypermarkets, which combine supermarkets and department stores, were made in RT-Mart’s outlets, according to research firm Euromonitor International.

Chinese shoppers like the low prices and convenience they find in hypermarkets, Brian Renwick, Boyden Global Executive Search’s managing director for China, said by phone today. There has been increased hiring of executives in China this year, including the retail sector, he said.

RT-Mart may open as many as 35 stores annually over the next three years to bring its total to 210 by 2012, Yoshihiko Kawashima, a consumer analyst at Daiwa Securities Group, said in a May 11 note to clients. RT-Mart China and Auchan China own 33 percent of each other, Kawashima said.

Auchan acquired 67 percent of RT Mart Taiwan for NT$10 billion ($309 million) in 2000. Calls to Auchan’s corporate communications offices weren’t returned.

Market Share
“We haven’t found an underwriter,” said Meng Fan Wen, an RT-Mart spokesman, declining to comment on how much the company may raise or when the share sale may take place. “We have said before that we plan an IPO in Hong Kong.”

Retail sales at RT-Mart’s outlets amounted to 38.8 billion yuan ($5.7 billion) last year, or 10.7 percent of the total spent in China’s hypermarkets, according to Euromonitor. Carrefour ranked second with 33.5 billion yuan or 9.2 percent while Wal-Mart was third at 31.2 billion yuan or 8.6 percent.

RT-Mart shareholder Ruentex Group, run by Taiwan’s 17th richest person Samuel Yin, first entered the retail market in Taiwan in 1996 and expanded into China a year later to set up RT-Mart, according to Forbes. The Yin family holds at least 24 percent of RT-Mart China, according to Forbes and Daiwa’s Kawashima.

Ruentex Group unit Ruentex Industries reported a loss of NT$39 million in the first quarter, narrower than its loss of NT$94 million a year earlier. RT-Mart China, which this year increased its stores by 7 to 128 as of May 9, is estimated to contribute 98 percent of Ruentex Industries’ pretax earnings in 2010, Kawashima said.

Debt Crisis
RT-Mart China faces investors unnerved by Europe’s sovereign debt crisis and the possibility of bad loans piling up in China after record lending last year.

The share sales of Agricultural Bank of China Ltd. and Bank of Communications Co. may raise less than initially estimated. Agricultural Bank will probably raise as much as $23.4 billion, Industrial Securities Co. estimated June 6, less than the $30 billion reported by local media. Bank of Communications, also known as BoCom, may raise $4.8 billion in a rights offer, about 20 percent lower than initially planned.

Still, individual investors ordered almost 160 times the number of shares reserved for them in the Hong Kong IPO of French beauty-products maker L’Occitane International SA, which together with its parent raised HK$5.49 billion ($704 million). L’Occitane’s stock is 16.6 percent higher than its offer price after first trading on May 7.

--With assistance from Chinmei Sung in Taipei. Editors: Frank Longid, Hwee Ann Tan

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Wendy Leung in Hong Kong at wleung12@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Frank Longid at flongid@bloomberg.net