24 March 2019
China's catering sector saw a 9 percent revenue growth in 2013, the slowest in 21 years. Photo: Bloomberg
China's catering sector saw a 9 percent revenue growth in 2013, the slowest in 21 years. Photo: Bloomberg

South Beauty may have missed best timing to go public

Zhang Lan {張蘭}, founder of the high-end restaurant chain South Beauty {俏江南}, has sold most of her stake in the company to CVC Capital Partners, Europe’s largest private equity fund.

Zhang, once dubbed the Queen of Chinese Cuisine, may find the timing auspicious as her daughter-in-law, Taiwan actress Barbie Hsu, has just given her a granddaughter. Besides, she will remain the group’s chairperson, which means she is not entirely losing control of the company.

Rumors of Zhang selling her stake began in October last year, as overexpansion and the government’s crackdown on lavish official receptions weighed heavily on the company’s performance. The business has been facing a capital squeeze in the past few years. 

According to the National Business Daily, CVC is probably injecting US$300 million in exchange for a 69 percent stake.

For the private equity fund, the best way to revive South Beauty’s fortunes is to diversify and popularize the brand. As the largest shareholder, CVC is likely to require the restaurant chain to expand its foothold in lower-tier cities, a strategy which Zhang reportedly has been reluctant to adopt.

Once it has put the company back in shape, the next step for CVC is to take it public, which is what it did after transforming the old luggage brand Samsonite (01910.HK) in 2011.

However, South Beauty may have already missed its best chance for a share listing, and it would even be harder under the stratospheric valuation that Zhang wished for the company.

After the global financial crisis in 2008, Zhang invited CDH Investments into the group to help ease its financial woes. The private equity fund invested 200 million yuan (US$32 million) in exchange of 10.53 percent stake.

Both parties targeted a four-year timeframe to list the group. In 2012, South Beauty filed an initial public offering application to the Hong Kong exchange, but received lukewarm response from many bankers and investors, who were wondering how Chinese cuisine could be standardized for a public company. The IPO plan was suspended after the group failed to get the high valuation it wanted. 

Back to the future. It is hard to tell how soon China’s cuisine sector will recover as Beijing pursues its frugality campaign without letup, depriving high-end restaurants of their most lucrative source of business.

Catering revenue was 2.5 trillion yuan last year, according to the China Cuisine Association. Although that represents a 9 percent growth from the previous year, it is the slowest increase in 21 years. The situation is even worse for high-end players, which reported a 1.8 percent drop in revenue.

– Contact the writer at [email protected]



EJ Insight writer

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