Consortium backs PRC housing needs

This follows a commitment by Warburg Pincus of $200 million in RedStar Macalline in 2007, for around 20% of the business.

The investment comes in spite of widespread speculation by banks like Goldman Sachs and others that China is experiencing a severe housing bubble and that real estate prices – and owners – could be in for a shock. China’s stimulus package fueled a buying frenzy, to the point where the government has recently announced severe cutbacks in the way that home mortgages are approved, as well as banned 78 SOEs whose primary business is not real estate from investing in it as an attempt to quell the bubble.

AVCJ sources described RedStar Macalline’s business area as considerably more problematic than general PRC consumer retail plays, as it is heavily exposed to the real estate cycle, and exhibits similar cyclical peaks and troughs in activity. Retail operations in this space are more likely to seek outside investment to help them through troughs in the cycle, sources confirm. The business also may have its short-term prospects crimped as a result of the PRC government’s plans to rein in China’s real estate market.

According to RedStar Macalline CEO and Chairman Che Jianxin, the new funds will be used to grow the company’s network and push ahead with listing plans for Shanghai or Hong Kong, in the pipeline since 2007. RedStar Macalline currently operates some 66 stores across China, up from 33 at the time of Warburg Pincus’s original investment, and plans to open three to five new premises per year to increase this number to 200 by 2020. Warburg Pincus was already in discussion with the company earlier this year for a fresh round of investment,

The participation of the Bohai Industrial Investment Fund, a BOCI-managed vehicle targeting RMB20 billion ($2.8 billion), comes as part of the PRC central government-backed initiative to develop Tianjin and the whole Bohai Rim region. It also raises some questions regarding the deal, as the fund was previously described as “dysfunctional” by AVCJ sources, who have questioned its performance in trying to distance itself from central government priorities and become a truly profit-driven entity.

AVCJ sources noted that RedStar Macalline is one of several home furnishings chains in China seeking IPOs, in order to fund further domestic expansion. Private equity participants were unavailable for comment on the deal.

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• Topics
• Greater China
• Consumer
• Expansion
• Warburg Pincus Asia