Global private equity firm CVC Capital Partners has grabbed a share of China's rapidly growing beverage market with its purchase of a 29 percent stake in Asia's top plastic beverage bottle producer.
In what is one of the biggest- ever direct private equity investments in China, London-based CVC paid $225 million to become major shareholder in Zhuhai Zhongfu Enterprise Co. Ltd., the country's largest PET bottle molder.
Zhongfu of Zhuhai, whose top customers include Coca-Cola Co. and PepsiCo Inc., molds PET bottles for carbonated soft drinks, teas, juices, beer and bottled water. Founded in 1982 by former fisherman Huang Lefu, now its chairman, the company today employs 8,000 at 60 subsidiaries across China.
Zhongfu, which has 84 plants, has the capacity to turn out 4 billion injection molded bottle preforms and 5 billion blow molded bottles per year. It makes a range of bottles from one-half to 2 liters in size.
The packaging firm, which also produces PVC/oriented polypropylene labels, shrink wrap, closures and cartons, operates a contract business for hot-fill beverages and bottled-water filling.
The Chinese molder, which has about a 40 percent share of China's PET bottle market, said it is committed to PET packaging production and to developing PET technology. CVC is keen to focus on bottle manufacturing.
Listed on the Shenzhen Stock Exchange, Zhongfu recorded 2006 sales of 2.25 billion yuan ($282 million). Its sales in 2007 are projected to reach 2.9 billion yuan ($386 million) and rise to 4.1 billion yuan ($545 million) in 2010, the Chinese press reported earlier this year.
Today, China is the world's No. 2 beverage market. That market is projected to grow at an annual rate of about 11.6 percent between 2006 and 2011. PET bottles, already widely used in China, are expected to mirror that rate of growth in the country, CVC said. China recycles much of its bottle waste for textile manufacturing.
CVC calls the Zhongfu deal ``a landmark transaction,'' because CVC won government approval to acquire a significant stake in a listed Chinese company. Governments, including China's, have been wary of allowing foreign equity investors to snatch majority shares in national enterprises.
Officials of the London firm said they will ensure that Zhongfu continues to gain customers and introduce new products. In line with those goals, the London firm has agreed to bring on board Amcor Group's former chief executive officer, Russell Jones, as a nonexecutive director and Ben Chan, already a Zhongfu adviser, who saw 13 years of service with Husky Injection Molding Systems Ltd., as the new CEO.
CVC bought its 29 percent stake from a group of shareholders, including Zhongfu founder Huang Lefu, and the group will retain a holding of almost 6 percent.
Zhuhai Zhongfu was responsible for the launch of China's first PET beer bottle project in 1999. Today, Zhongfu is developing an innovative, three-layer PET bottle for pasteurized beer that is expected to grow by some 8 percent a year in China.
Few brewers in China, so far, bottle their beer in plastic, but Zhongfu is reported to have signed up two Chinese companies, Union Brewery and Hebei Lanbei Liquor Group, as customers.
Chinese media reports earlier this year said Zhongfu was in PET bottle-supply talks with other manufacturers in China, including Tsingtao Beer Co. Ltd. of Qingdao and Budweiser.