Beijing's largest supermarket chain Wumart Stores Inc will buy a 27.7 percent stake of Xinhua Co, a local retailer in Northwest China, as it continues its expansion in China's competitive retail market.

Wumart and Yinchuan Xinhua Department Store, the largest shareholder of Xinhua Co, entered a share transfer agreement on Sunday, Wumart said in a statement to the Hong Kong stock exchange yesterday.

Wumart will pay 176.7 million yuan (US$22 million), or 6.2 yuan (77.4 US cents) a share, for 28.5 million non-tradable State-owned shares of Xinhua Co, currently held by Xinhua Department Store.

The sale price represents a 28 percent discount on the closing price of the Shanghai-listed Xinhua Co's tradable shares on March 31, the statement said.

Tradable shares of Xinhua Co closed at 8.63 yuan (US$1.08) on March 31 and have been suspended from trading since then, as the firm said it would enter the share reform period.

"It represents an important stride in Wumart's nationwide expansion," the company said in yesterday's statement.

"The acquisition provides a sound opportunity and platform for expanding the company's network in northwestern China."

Xinhua Co, based in Yinchuan, the capital of Ningxia Hui Autonomous Region, has four department stores and 23 chain stores in the region.

Wumart's supermarkets, hypermarkets and convenience stores are currently in Beijing, Tianjin and Hebei Province.

"The deal will benefit both Wumart and Xinhua, as it will allow exchanges in sourcing, information systems and so on," said Sun Luan, an analyst at CITIC China Securities.

"Wumart will take the presence in Yinchuan as a start-up for its expansion in the Northwest," Sun said.

The company has a long-term strategy to expand its retail network throughout China and establish "Wumart" as a prestigious brand name nationwide.

To achieve that goal, it has been actively seeking expansion opportunities.

In February, it acquired a 75 percent stake in a Beijing competitor, MerryMart, for 373.5 million yuan (US$46.6 million).

Wumart also sold 21.2 million new shares to raise up to HK$464 million (US$59.79 million) in February, seen as a prelude to other mergers and acquisitions.

Domestic retailers like Wumart are facing increasing competition from their overseas counterparts, which have increased the speed of expansion in China after the nation fully opened the retail market at the end of 2004.

When the acquisition is completed, Wumart will replace Xinhua Department Store as Xinhua Co's largest shareholder.

It will be entitled to share the pre-acquisition profits of Xinhua Co, and it has also agreed to bear any costs incurred in the process of making all its shares publicly tradable.

(China Daily April 11, 2006)