Asia Briefing: Tesco to pay €412m to join forces with retail giant

Tesco will pay HK$4.33 billion (€412 million) to buy 20 per cent of a venture with the state-run China Resources. The venture will combine Tesco's unprofitable China business, comprising 134 outlets and shopping mall businesses in China, with the almost 3,000 stores owned by the Chinese supermarket and convenience store operator in China and Hong Kong. The joint venture will operate hypermarkets, supermarkets, convenience stores, cash-and-carry businesses and liquor stores in China.

China Resources, the Hong Kong listed retail and beer conglomerate, will hold 80 per cent of the venture, and Tesco will take 20 per cent, according to a filing with the Hong Kong stock exchange. In August, China Resources said it may partner with Tesco to bid for ParknShop, Hong Kong’s biggest grocery chain.

Foreign retailers such as Tesco, France's Carrefour and US outfit Walmart have been eager to get access to China's retail market, as the country has opened up in the 12 years since it joined the World Trade Organisation. Total supermarket sales last year were 1.8 trillion yuan (€220 million), a 10 per cent increase on the previous year, according to Euromonitor data.

"Through this deal we have a strong platform in one of the world's most exciting markets, and it will move us more quickly to profitability in China," Tesco chief executive Philip Clarke said in a statement. Tesco recently sold its US businesses.

Tesco started to sell goods in China in 2004 and generated €1.6 billion worth of sales in the country in its last fiscal year.

Tesco’s chief financial officer Laurie McIlwee said that any retail business that starts in China, that’s either acquired or developed, will be part of the joint venture.

“The acquisition, if there was an acquisition, will be financed through the debt of the business because the two businesses will be brought together both cash- and debt-free so there is huge debt capacity in the combined joint venture,” he said.

Tesco is ranked fourth-biggest overseas grocery retailer in China, after Auchan, Walmart and Carrefour, but it makes significant losses there. It lost nearly €280 million in the year to the end of February and last year scaled back its China business to help it build a profitable business.