A McDonald’s restaurant on Wangfujing, a famous shopping street in Beijing, China. Picture: REUTERS
A McDonald’s restaurant on Wangfujing, a famous shopping street in Beijing, China. Picture: REUTERS

Hong Kong — Chinese state-owned conglomerate Citic is planning to significantly reduce its stake in McDonald’s China more than two years after it bought into the fast-food chain, as rising costs pinch the franchise’s profit.

McDonald’s China said in a statement on Wednesday that Citic is looking for buyers for a 22% stake, which will bring its share in the chain’s China operations down to 10%. The bottom price for the stake is set at 2.17-billion yuan ($312m) and the bidding process is ongoing, said a disclosure document filed by Citic to the Beijing Equity Exchange.

Separately, Citic Capital Holdings — partly owned by Citic — said it’s interested in buying the stake. It currently owns 20% in McDonald’s China.

“Citic Capital is confident with the future growth and prospects of the business and we’re actively participating in the bidding process,” said a Hong Kong-based spokesperson.

Citic said in an e-mailed statement that the transaction is “purely a business decision”. Citic and its partners will continue to benefit from the development of McDonald’s China, it said. Citic said Chicago-based McDonald’s holds a 20% stake in the China business.

The stake sale comes as the fast-food chain is seeing revenue and profit growth stall amid fierce competition in China’s dining scene. Food chains have also been hit by rising costs due to the ongoing African swine fever epidemic, which has wiped out a quarter of the world’s pigs and caused animal protein prices in China to surge.

Citic’s disclosure document shows that revenue for the McDonald’s China master franchiser, called Fast Food Holdings, was 24.8-billion yuan in 2018. For the first 11 months of 2019, it was 24.4-billion yuan.

Operating profit for the first 11 months of 2019 was 16.2-billion yuan and net profit for the same period was 856.2-million yuan, according to the statement. This is compared to 16.4-billion and 1.15-billion yuan, respectively, for all of 2018.

McDonald’s China said that same-store sales have risen for three years consecutively since Citic and its partners bought over the franchise in 2017.

Bloomberg