Morgan Stanley in China convenience store carve-out

The PE player has agreed to buy a 72% stake in the Cayman Islands subsidiary that operates the convenience stores for an disclosed sum, and also settle a shareholders' loan worth RMB58.1 million ($9.3 million). 

The majority of the shares will come from Siu Lam Cheung, CFSH's chairman. The selling party is KPB Marketing, an indirect wholly-owned subsidiary of CFSH that in turn controls the Cayman-incorporated entity.

Hong Kong-listed CFSH describes itself as a diversified financial services company that operates a guarantee unit, a micro-credit unit, a pawn shop and a financial consulting unit. The company changed its name to CFSH in 2011, having previously been known as KPI.

It began as a trading company and first invested in mainland China retail in the late 1990s in partnership with the Shanghai-based hypermarket Hualian GMS Shopping Center. KPI opened its debut Hi-25 convenience store in Beijing in 2002, building a network of 100 outlets within three years.

KPI received strategic investment from PAG-controlled ARC Capital Holdings and CITIC Capital among others in 2007. This enabled the company to acquire a majority position in GMS, which was exited three years later. Meanwhile, the Hi-24 network expanded to 150 stores, claiming a 30% share of the Beijing convenience store market. The plan was to double that footprint within two years, but by year-end 2011 there were about 186 Hi-24 outlets in the city.

The change in name also signaled a change in direction. With CFSH keen to expand its financial services interests, the retail assets do not appear to complement the core business. Earlier this month, the company announced a restructuring of its operations under which the convenience stores were spun out into the Cayman entity. KPB Marketing owns 72% of the combined assets, while Cheung holds 28%.

The convenience store business was worth approximately HK$17.8 million ($2.3 million) as of June 30 and CFSH expects to make a realized gain of around HK$53.7 million through the divestment. The business generated a turnover of HK$264 million in 2011 and net profit of HK$8.5 million.

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• Topics
• Buyouts
• Greater China
• Consumer
• buyout
• China
• Consumer
• Morgan Stanley Private Equity Asia