KKR buys stake in appliance maker in biggest China deal

HONG KONG Wed Oct 2, 2013 12:25am EDT

Related Topics

HONG KONG (Reuters) - Investment company KKR & Co LP (KKR.N) said it had agreed to buy a 10-percent stake in Qingdao Haier Co Ltd (600690.SS), gaining exposure to China's home appliances market with its biggest investment in the country to date.

The acquisition, which is subject to shareholder and regulatory agreement, is KKR's third Asian deal in a week as it begins to invest its new $6 billion Asia fund, the region's largest ever.

The companies did not disclose the deal value, but a person familiar with the matter said New York-headquartered KKR paid around $550 million.

For the Chinese maker of washing machines and refrigerators the deal means a link to a global investment firm that could help it expand beyond its local market.

For KKR, the deal offers a stake in a firm that is inexpensive compared with peers and part of China's booming consumer market.

Foreign firms have been keen to access China's home appliance sector, which is forecast to grow by about one-fifth in the next two years to $105 billion, according to data from consultancy Euromonitor.

KKR's purchase comes less than two months after Whirlpool Corp (WHR.N), the world's largest maker of home appliances, agreed to buy a majority stake in China's Hefei Rongshida Sanyo Electric Co Ltd (600983.SS) for $552 million.

In 2011, Carlyle Group (CG.O) agreed to invest up to $194 million for a 9 percent stake in Haier Electronics Group (1169.HK), a company controlled by Qingdao.

Qingdao Haier, which makes and distributes washing machines, refrigerators, air-conditioners and other appliances, has a market value of some $5.8 billion. Trade in its shares was halted on September 12, pending an announcement.

Founded in 1984, Haier Group was a collection of factories on the verge of bankruptcy before transforming itself into a global consumer brand with 70,000 employees.

Qingdao Haier owns a 47.9 percent stake in Hong-Kong listed Haier Electronics Group, according to Thomson Reuters data.

UNDER VALUED

For KKR, the purchase comes at a low point in Qingdao Haier's valuations. The stock trades at a trailing price-to-earnings ratio of 10.6, making it the second-least expensive home appliance maker in the Asia-Pacific behind Gree Electric Appliances Inc of Zhuhai 000651.SZ, Thomson Reuters data showed.

The Chinese home appliance industry is battling higher labor and operating costs and Chinese consumers are unwilling to pay a premium for local products.

Despite the sluggish retail market, KKR believes Qingdao Haier's stock is undervalued, and sees room for growth in China's home appliances market, according to a source with knowledge of the firm's investment strategy.

"If you look at the market today, the penetration of white goods is about the same level as Japan and the U.S. 30 years ago," the source said.

The source added that in China, 87 out of every 100 homes has a fridge, but the ratio in the US is 150 fridges to every 100 homes. KKR also expects to help Qingdao Haier with acquisitions, the source added.

KKR said last week it would lead a joint venture with China Modern Dairy Holdings Ltd (1117.HK) and a Chinese private equity firm that would invest $140 million in two large dairy farms.

KKR said on Friday it had agreed to pay $1.7 billion for Panasonic Corp's (6752.T) healthcare unit, in the largest private equity offer in Asia this year.

(This story is corrected with value of Carlyle's investment, and stake size, in paragraph 8)

(Reporting by Stephen Aldred and Denny Thomas; Additional reporting by Michael Flaherty; Editing by Jane Baird and Jason Neely)

FILED UNDER:

Track China's Leaders