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Chinese restaurants starved of IPO funds as lavish meals taken off menu

Four restaurant chains, including Go Believe that serves the famous goubuli steamed buns, have withdrawn their listing applications. Photo: Imaginechina

China's restaurant chain operators, already feeling the pinch as business diners succumb to the Communist Party's frugality campaign, are losing another battle - failing to secure initial public offerings on the stock market.

Not a single restaurant chain that planned to raise funds on the A-share market has been able to float their shares, a fresh sign that the sector would continue to face difficulties amid an economic slowdown.

Earlier this month, Guangzhou Restaurant failed to pass the listing review by the China Securities Regulatory Commission, becoming the latest company in the catering industry to see its flotation plans aborted.

The regulator did not publish reasons for rejecting the application, but it is believed that lacklustre earnings potential was behind the decision.

Five restaurant chains had been waiting in line for an A-share listing since 2012, but by July, four of them, including Go Believe that serves the famous goubuli steamed buns, had withdrawn the applications.

"Catering businesses are a sector that investors would shun," said Chen Jinquan, a fund manager at Aegon-Industrial Fund Management. "Their outlook is bearish as the impact from the anti-corruption drive appears to be bigger than expected."

China's leadership is determined to curb wasteful spending of public money, urging government agencies, state-owned firms and institutions to cut extravagant meals.

According to the China Cuisine Association, high-end restaurants across the country reported a 1.8 percent decline in sales last year to 818 billion yuan.

Between 2011 and 2012, the catering sector was a bright spot of the economy, with Chinese people' rising affluence and increased spending on dining out seen as a strong driver of sales.

Dozens of restaurant chains started making plans for listing three years ago, hoping to raise capital to fund expansion.

At that time, a number of well-known brands including South Beauty, Shun Feng, Jingya Group, Porridge Jiahe, Go Believe and Guangzhou Restaurant submitted listing proposals to the regulator and their plans drew rave reviews as investors became convinced of restaurants' earnings potential.

South Beauty gave up its A-share listing plan in early 2012.

After the leadership reshuffle later that year, the catering sector began to bear the brunt of the anti-corruption campaign, with a sharp fall in business diners.

The association said business could plunge as much as 50 percent at some high-end restaurants.

The regulator suspended listings between October 2012 and December 2013, which deterred caterers from raising funds.

Higher rents and soaring labour costs further dented profits of the sector.

A survey by the China Hotel Association showed net profit margins at Shanghai's restaurants nearly halved to 2.5 percent in the first half of this year from a year earlier.

Labour costs surged about 20 per cent while rents rose 10 per cent in the first half, the association said.

"There has been a belief that the increase in personal dining would offset the drop in business diners, but the truth is that a slowing economy has discouraged people from spending more on dining out," said Shanghai-based hedge fund manager Dong Jun. "That's why the restaurants were shut out of new share offerings."

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