Five Star Appliance Co Ltd, the mainland's fourth largest electrical appliance retailer, filed an application to the Hong Kong bourse for an initial public offering (IPO) of as much as HK$500 million (US$64 million), a local report said.

This is the latest attempt by mainland retailers to raise funds in Hong Kong in attempts to fuel their expansions on the increasingly competitive home market.

Mainland retailers China Paradise and Parkson raised a combined amount of US$340 million in Hong Kong IPOs in October and November.

Hong Kong-based infocastfn.com, a financial information provider, said on Wednesday Nanjing-based Five Star has filed the listing application for an offering amounting between HK$400 million and HK$500 million, without identifying the source.

The company has attracted three international investment institutions, including International Finance Corporation, as its strategic investors.

More than 50 per cent of the company's stakes are now held by its chairman, Wang Jianguo, and three other senior executives, it said.

A Five Star spokeswoman did not comment on the report, only saying the company has a special team to scrutinize its development strategy and listing efforts.

However, local analysts said it has been a trend for mainland retailers like Five Star to offer shares in Hong Kong to sustain expansion on the back of the mainland's consumption boom.

"They came one after another... Gome, Wumart, China Paradise and Parkson," said an anonymous analyst. "There will be more."

Five Star was the 12th largest chain retailer and the fourth-largest white goods retailer in the Chinese mainland, according to a report released by the Ministry of Commerce in August.

Its sales amounted to 7.3 billion yuan (US$912 million) in the first half of 2005, representing an increase of 70 per cent year-on-year.

"Our sales have been growing very rapidly," the spokeswoman said. "We hope to keep that pace."

Unlike its bigger competitors, Five Star has focused on second and third-tier cities since it was founded in 1998.

That strategy helped the firm avoid cut-throat rivalry in big cities such as Beijing, Shanghai and Guangzhou, leading to an exceptionally high growth in sales and outlet numbers, which was rarely seen in the sector.

As of last October, Five Star operated more than 130 outlets in over 80 cities in East China's Jiangsu, Anhui, Zhejiang, Jiangxi and Shandong provinces, Central China's Henan, West China's Sichuan and Southwest China's Yunnan provinces.

However, fiercer competition seems inevitable in the coming years, as foreign giants such as Wal-Mart, Carrefour and Metro, and bigger domestic rivals Gome, Suning and China Paradise, have all spearheaded into smaller cities.

"The mainland's retail market is undoubtedly highly competitive," said Andes Cheng, associate director at Hong Kong-based South China Research Ltd.

Cheng said the market size is big, potential is high and it is "fully-opened."

"No wonder every player wants to take a slice," he said, adding it is important for a mainland retailer to gain sufficient funds in a fight for bigger market share.

Source: China Daily