Bear Stearns, Gome's Huang Form China Retail Fund

Bear Stearns Cos., an investment bank that gets more than 80 percent of its revenue in the U.S., joined with China's richest man to set up a $500 million fund to invest in retailers in the world's fastest-growing major economy.

Huang Guangyu, chairman of Gome Electrical Appliances Holdings Ltd., will use his closely held Eagle Investment Group to invest $250 million for buying non-appliance retailers, with the New York-based bank contributing the remainder, the companies announced in a joint statement today. Gome is China's biggest electronics retailer with 850 outlets in 200 cities.

China's government, aiming to narrow last year's record $177.5 billion trade surplus, is trying to spur local consumption demand and boost imports. That's creating opportunities for Bear Stearns, which has invested almost $520 million in U.S. retailers including 7 for All Mankind and Stuart Weitzman Holdings LLLC.

``Bear Stearns is obviously optimistic on China's retail market, but lacks the local experience,'' said Hu Hongke, an analyst at China Merchants Securities Co. in Shanghai.

Wal-Mart Stores Inc., Carrefour SA and other global retailers opened outlets in the world's fourth-largest economy, attracted by a retail market that may triple to 20 trillion yuan ($2.5 trillion) by 2020, according to the Chinese government estimates. Retail sales grew 14 percent to $770 billion in 2006, after expanding by an average 11 percent in the decade to 2005.

Gome shares dropped 2.4 percent to HK$8.47 at 2 p.m. in Hong Kong, having gained 39 percent this year. Bear Stearns' shares rose 1 percent to $147 in New York yesterday.

Richest Man

Huang, 37, built Gome into a chain of more than 800 stores and topped Forbes magazine's China Rich List in 2006. Facing increasing competition with overseas retailers such as Best Buy Co., Gome agreed in July to buy rival China Paradise Electronics Retail Ltd. for $675 million to boost market share.

The Eagle-Bear Stearns Retail Fund ``can help us complement each other's competitive advantages,'' Huang said today. The fund will ``invest in companies with large customer bases and which can be improved by being professionally managed or with a capital injection,'' he said.

Huang's closely held Eagle Property Investments Group formed an $800 million real estate fund this month with Singapore's Pacific Star to buy property in China.

Real Estate Fund

The real estate fund aims to develop up to 2 million cubic meters of residential and commercial property every year in the next three to four years, Huang said at a breakfast briefing today in Beijing. His Eagle property fund will be kept separate from his stake in Beijing Centergate Technologies Holdings Co., which invests in technology parks and industrial areas, he said.

``Huang's ambition is to build Gome into something like Hutchison Whampoa Ltd.,'' with businesses in retailing, hotels, real estate and finance, said China Merchants' Hu.

Bear Stearns, the biggest U.S. underwriter of mortgage bonds, almost sold a stake to Hong Kong-based Jardine Matheson Holdings Ltd. in 1987 in a deal that was called off after the market crash that year.

Since then, Chairman James Cayne set up shop in mainland China, more than tripled the firm's staff in the region, then pulled out again. In April last year the company declined to comment on a report it was in talks to sell at 10 percent to 20 percent stake to China Construction Bank.

Playing Bridge

In 1992, when Cayne opened the firm's Beijing office, he took part in a bridge tournament with top Chinese government officials. The participants included Wan Li, chairman of the National People's Congress and Deng Pufang, the eldest son of the late Deng Xiaoping, China's former paramount leader, according to a New York Times report of Dec. 20, 1992.

In 1993, Bear Stearns led the $93 million initial share offering by Ek Chor China Motorcycle Co., which was among the first group of Chinese companies to offer stock in the U.S.

Earlier this month, Bear Stearns said first-quarter profit rose 8 percent to $554 million as higher revenue from trading derivatives and debt of troubled companies overcame a slowing market for home loans.

Bear Stearns advised on takeovers valued at $57 billion that were completed during the latest quarter, rising from $35 billion a year earlier, data compiled by Bloomberg show. Equity underwriting rose to $2.1 billion from $844 million.

Formed last year after the China Paradise merger, Gome mapped out a five-year expansion plan in November, forecasting sales to surge to 100 billion yuan in 2007, 120 billion yuan in 2008 and 150 billion in 2009.

The group also plans to build 30 logistics centers in China in the next five years and will start overseas expansion in 2010.

Huang, a peasant's son and a school drop-out at 16, acted as a middleman selling radios, batteries and other small electrical goods, before setting up Gome in 1987. He runs the company with his wife, Du Juan, 36, a former loan officer at Bank of China Ltd., the country's second-biggest lender.

Huang has also built an unlisted property empire, including 50 percent of Beijing's 32-story Eagle Plaza, where he works. Investigators in January cleared Huang of illegally borrowing 1.3 billion yuan of loans.

source:www.bloomberg.com