Qatar sovereign fund goes shopping in Hong Kong

Qatar Investment Authority buys 19.9% stake in HK department store operator for $618 million as Chow Tai Fook Enterprises partially exits investment.

Qatar Investment Authority on Monday bought a 19.9% stake in Hong Kong-listed retailer Lifestyle International, which operates the flagship Sogo store in Causeway Bay and stores in mainland China for HK$4.8 billion ($618 million).

The deal represents the sovereign wealth fund’s second investment in Asia, the first being a stake in Agricultural Bank of China, and comes as such funds are playing a more active role in investments. Singapore state investment company Temasek acquired a 25% stake in Hong Kong health retailer AS Watson for $5.6 billion in March this year.

The shares were sold by Real Reward, which is 50% owned by Thomas Lau, chief executive of Lifestyle International, his older brother Joseph Lau, chairman of Chinese Estates, and other family members; and the other 50% held by Cheng family-owned Chow Tai Fook Enterprises.

According to BOC International analyst Tiffany Feng, Chow Tai Fook Enterprises has been wanting to exit the business for some time and, although Chow Tai Fook operates a jewellery store in Sogo, there is limited synergy between the two families.

"The main purpose for the shareholding change is for Chow Tai Fook to exit," Hong Kong-based Feng told FinanceAsia. "They don’t have participation in the day-to-day operation.This is the second generation of the Cheng family, so I think it is natural and reasonable for them to exit," she added.

Jewellery chain Chow Tai Fook was founded by Hong Kong billionaire Cheng Yu Tung and is run by his eldest son Henry Cheng, who is the chairman.

The Cheng family also controls property developer New World Development, which has been actively bidding for properties and emerged as the winning bidder for a property project at Tai Wai station in Hong Kong last week. According to one source familiar with the matter, the company is looking to take money off the table.

The deal was struck at HK$14.75 per share, a 1% premium to Friday’s HK$14.6 close. On Monday, Lifestyle shares initially fell to HK$13.88 at about 2pm before rising to HK$14.84 around 4:20pm.

Real Reward will still be the single largest shareholder with a 32.2% stake while Qatar Investment Authority will be the second largest shareholder. However, in addition to his interest in Real Reward, Thomas Lau also has a combined 13.5% stake held directly and through a wholly owned subsidiary, and also controls United Goal Resources, which has a 7% stake in Lifestyle.

As such, he is expected to remain the driving force behind the company.

Qatar Investment Authority, which has stakes in UK retailer Harrods and in Paris Printemps, has been looking for an investment in Asia for some time and the deal took several months to close, the source added.

Qatar Investment Authority's investment is the largest consumer and retail M&A deal from Europe, the Middle East and Africa into Asia year-to-date. It is also the largest department store cross-border M&A deal for a Hong Kong-listed company.

JP Morgan advised Chow Tai Fook Enterprises and Bank of America Merrill Lynch advised Qatar Investment Authority.

¬ Haymarket Media Limited. All rights reserved.

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