China Resources-Led Group Buying Hong Kong Supermarket Chain for $300M

China Resources Capital Management, the alternative investments arm of China’s state-owned conglomerate China Resources Holdings, said Thursday it and partner Asia Food Growth Fund have signed an agreement to buy a 65 percent stake in Hong Kong-based high-end supermarket chain City Super Group.

The company, with businesses spanning property development, retail, brewery, pharmaceuticals and energy, didn’t disclose the purchase price, which Bloomberg earlier reported as $300 million. Subject to Chinese regulatory approvals, the transaction is expected to be completed by the fourth quarter of this year.

The Chinese conglomerate is acquiring the controlling interest in City Super from existing shareholders Fenix Group, a privately held Hong Kong-based fashion retailer, and real estate tycoon Peter Woo’s Lane Crawford Joyce Group. Fenix and Woo will retain 35 percent of Super City after the deal.

Accelerating Expansion in China

“Our new partners will help consolidate our success and accelerate our growth in China, and help us adapt to a rapidly changing marketplace,” said Thomas Woo, CEO of City Super. “We look forward to the broader partnership with China Resources.”

With the backing of China Resources, City Super plans to accelerate its expansion in the mainland to tap on China’s growing consumption. The company said it also expects to derive synergies from working together with China Resources’ chains of Vanguard and Ole supermarkets.

Established in 1996, City Super currently operates 20 supermarkets in Hong Kong and seven each in Shanghai and Taiwan. Its premium grocery stores are located in prominent locations such as Hong Kong’s IFC Mall, a waterfront integrated shopping and office complex in Central that counts global banks such as UBS Group AG among its tenants.

The acquisition comes amid recent moves by China Resources to consolidate its position in the mainland China supermarket industry.

Consolidating China Resources’ Supermarket Business

Just as the Covid-19 pandemic spread across the world in February, China Resources bought out the 20 percent stake held by its partner, Tesco, in a mainland China supermarket joint venture between the two companies, marking the exit of Britain’s largest retailer from the Chinese market.

“We are convinced that China Resources is the ideal partner for City Super to fully realise its potential given our leading position in China’s food retail market, our local knowledge and our strong and proven expertise in growing multinational brands in China,” said Carl Qin, CEO of China Resources Capital Management.

Hong Kong-listed China Resources operates almost 3,000 supermarket stores across China. The group is among China’s biggest food and beverage companies, supplying rice, meat, frozen food, fruits and vegetables across the mainland and Hong Kong, according to its website. It also brews Snow Beer and distributes bottled purified water.

Challenging Hong Kong Retail Outlook

The City Super deal is the maiden transaction for Asia Food Growth Fund, a vehicle jointly managed by China Resources, Bahrain-based Investcorp and Fung Investments, a private investment vehicle controlled by Li & Fung chairman Victor Fung and his brother William.

Under its new ownership, City Super plans to step up expansion into China amid signs the country’s economy is bouncing back from the economic slump caused by the Covid-19 pandemic. China’s GDP rose 3.2 percent in the second quarter after contracting 6.8 percent in the period from January through March, government data released in July showed.

In contrast, Hong Kong’s economy continues to sink deeper into recession, with GDP growth slumping another 9 percent in the second quarter. The city’s retail sector has taken the brunt of the coronavirus economic blow, even as it was already reeling from months of pro-democracy protests.

The value of the city’s retail sales fell 24.8 percent year-on-year in June. The one bright spot is supermarket sales which rose 4.5 percent in June from a year ago.

Despite the resilience of the supermarket industry, the recovery of Hong Kong’s broader retail sector will depend on when the Asian financial centre reopens its borders to tourists and business travellers, said Kevin Lam, executive director and head of retail services at Cushman & Wakefield in Hong Kong.

“Without these tens of millions of visitors’ support, the general retail sector in Hong Kong is still under the biggest challenge ever,” Lam said. Visitor arrivals in Hong Kong tumbled 90 percent in the first half of this year to 3.5 million from a year ago as the government restricted flights to the city in a a bid to curb the further spread of coronavirus.