Chinese state-owned enterprise Citic Limited is reportedly planning to dump a substantial portion of its stake in McDonald's China. The decision to drop its substantial stake in the fast-food operator is apparently due to the company's worse-than-expected sales growth for its stores in both Hong Kong and Mainland China.
According to its filing on the China Beijing Equity Exchange on Wednesday, McDonald's current performance is apparently lagging behind Citic's "Vision 2022" sales growth plans. For this reason, the company is selling its 22 percent stake in the fast-food operator with a minimum bid price of $313 million. If the sale pushes through, Citic Limited will still have a standing 10 percent stake in McDonald's.
Sources close to the transaction have speculated that Citic Capital Partners could join the bidding and purchase the 22 percent, which would be added to its existing 20 percent stake in the venture. A spokesperson for the asset management affiliates revealed that the company is optimistic about the franchise's prospects in the country despite its recent performance.
Citic Limited will be opening the bidding for its 22 percent stake for 20 working days. This means that the company could be announcing the winning bidder by mid-February as the upcoming Lunar New Year holidays will take up a good chunk of the allotted timeframe.
The state-owned conglomerate originally obtained its stake in McDonald's more than two years ago, when it partnered with Citic Capital Partners and US private equity firm Carlyle Group to purchase an 80 percent stake for $2.08 billion. Carlyle Group acquired a 28 percent stake in the company, while Citic Capital took a 20 percent stake. McDonald's Corp retained a 20 percent share in its Chinese operations, which was part of its global restructuring plan.
The 2017 agreement between the companies included a strategic multi-year plan dubbed "Vision 2022." The plan included the establishment of up to 4,500 restaurants in China and consistent double-digit sales growth over the next five years. During that time, the companies involved in the agreement took control of McDonald's existing 2,500 restaurants in China and 240 outlets in Hong Kong.
During the first 11 months of 2019, McDonald's China reported a net profit of 856 million yuan. This was a massive drop from the 1.2 billion yuan reported over the same period during the previous year. Total revenues for 2019 also dropped from 24.8 billion yuan in 2018 to just 24.4 billion this year.
McDonald's China VP of communications, Regina Hui, stated that same-store sales and traffic had remained positive for three consecutive years. The company also opened more than 430 stores in China last year and it plans to continue expanding in the coming years.
