Tencent invests in PE-backed China South City
Chinese internet company Tencent Holdings has bought a 9.9% stake in China South City Holdings, a logistics center operator that count PAG among its investors, for HK$1.5 billion ($193 million).
Tencent said that it would collaborate with China South City in online and offline trade services, including e-commerce, outlet services for branded goods, online-to-offline retail, online payment and warehousing and logistics.
The investment comes as several Chinese internet companies are seeking to boost their logistics capabilities to cope with growth in e-commerce.
Tencent will subscribe to 680.3 million new shares of China South City at HK$2.20 apiece, representing a 1.4% premium to the January 13 closing price. It also has the option to subscribe to an additional 244.8 million shares at HK$3.50 apiece within the next two years, taking its holding to 13%.
Last year PAG purchased HK$975 million in convertible notes issued by China South City via the PAG Asia Opportunity Fund, a $275 million special situations vehicle that closed in 2006. Assuming full conversion of the 625 million shares, the PE firm will hold a 9.35% in China South City.
"Chinese small-to-medium sized enterprises have huge demand to expand their businesses online. Cooperation with China South City enables us to jointly facilitate such enterprises migrating online, utilizing China South City's physical locations and logistics capabilities, together with Tencent's internet user platforms and technology capabilities," said Martin Lau Chi Ping, president of Tencent, in a statement.
China's online retail market more than doubled in size each year from 2003 to 2011 and McKinsey & Company expects it to grow more than threefold between 2011 and 2015, reaching $395 billion.
Last year Alibaba Group formed China Smart Logistic Network, also known as Cainiao Network Technology, teaming up with five existing logistics providers to help the company achieve greater penetration in lower-tier cities and save on costs. Chinese conglomerate Fosun International contributed RMB500 million ($81.4 million) for a 10% interest in the project.
Meanwhile, online retailer JD.com, formerly known as 360Buy, has raised $1.7 billion in PE and VC funding in the last two years and much of this capital has been put towards the creation of a nationwide network of warehouses and delivery fleets.
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