3i, Prax Capital celebrate Little Sheep's successful IPO

3i, a world leader in private equity, and Prax Capital, the China-focused private equity firm, today congratulated Little Sheep Group Ltd (“Little Sheep”) on its successful IPO on the Hong Kong Stock Exchange.

The company is China’s leading hot pot restaurant chain with branches throughout Asia and internationally. The IPO values the company above HK$3 billion.

Little Sheep offered a total of 245,188,000 shares under the Global Offering, raising total proceeds of HK$779.7 million before the exercise of the greenshoe. The retail tranche was 71 times oversubscribed.

In June 2006, 3i invested US$20 million in the company, with Prax Capital as co-investor investing another US$5 million. It was the first foreign private equity investment in a Chinese restaurant chain. Both investors have taken an active role in supporting Little Sheep’s growth via strategic counsel, improvements to planning and operational standards.

3i’s local knowledge and experience in the consumer sector both domestically and in Europe helped it to swiftly recognise the great potential for Little Sheep’s business. Additionally, 3i introduced two highly experienced independent directors to the board: Nish Kankiwala, former President of Burger King International, and Yuka Yeung, former CEO of KFC’s master franchise in Hong Kong. Subsequently, Mr Yeung joined Little Sheep as COO, and 3i investment professional Daizong Wang, joined as CFO, further strengthening the senior management team.

3i Partner in Hong Kong, Anna Cheung said: “We at 3i have been proud to work with Little Sheep’s management team to achieve outstanding growth and success for the business. With the company’s strong base from which to move forward and widespread brand recognition, we believe Little Sheep will continue to build upon its leadership position in the Chinese restaurant market.”

Jeff Yao, Managing Partner of Prax Capital said: “Working with the management of Little Sheep in the past two years has been a happy, efficient and productive experience. The level of detail they prepare for each board meeting and their attitude and willingness to listen are very impressive and rarely seen in other companies. We are confident Little Sheep will continue to improve and grow under the current management.”
Mr Yao added: “Prax Capital’s strategy is not only to invest capital, but also to support portfolio companies in achieving sustainable growth. Little Sheep has been particularly impressive in both areas and are always very responsive to Prax’s relentless store-check findings and its recommendations for improvement. Prax believes that the strong open-minded management team have a drive to excel. Combined with Little Sheep’s competitive advantages, this will ensure the company’s continuous growth.”

Zhang Gang, Founder and Chairman, as well as Wenbing Lu, Executive Director and Chief Executive Officer, Little Sheep said: “Over the last two years of our development, 3i and Prax have been strong partners, providing us with more than just financial assistance, including invaluable advice and helping to strengthen our management team through introductions from their international networks.”

With China’s rapid economic development and consumer’s rising disposable income, the total sales of full-service restaurant chains has experienced outstanding growth, of a CAGR of 18.6% between 2001 and 2006.

Little Sheep is a leading Chinese catering brand which specialises in Mongolian-style hot pot cuisine. It operates 103 company owned and 247 franchise restaurants worldwide, throughout China and Hong Kong as well as Macau, Japan, the US, Canada and Indonesia. In 2007, Little Sheep generated revenues of RMB949.2 million (USD$137 million), up over 35% year-on-year.
The funds raised through this successful IPO will allow Little Sheep to open around 150 new company-owned restaurants and refurbish about 50 company-owned restaurants in the second half of 2008 to 2010. The company also plans to use part of the funds to expand its franchise network and to upgrade and expand the capacity of its lamb processing and soup base production facilities.

Little Sheep enjoys high brand awareness in the PRC. The brand “Little Sheep” was ranked as the “Number 1 Food Service Provider Brand of 2007 in the PRC” and one of the “Top 10 Most Influential Brands in the PRC” by the World Brand Laboratory in 2007. Little Sheep is also the third largest food service chain restaurants with 6% market share in the PRC in 2006, according to Euromonitor International.

Merrill Lynch International & Deutsche Bank AG Hong Kong branch acted as joint global coordinators and bookrunners for the IPO. Financial advice was provided by NM Rothschild & Sons (Hong Kong) Ltd.