Beijing, Nov 19 - South Beauty Group has agreed to sell a 10 percent stake to two foreign investors, Zhang Lan, chairwoman and chief executive of the upscale Chinese restaurant group, said on Wednesday.
In an interview with Reuters, Zhang said she would use the proceeds to expand South Beauty's chain to 50 restaurants next year from 38 now.
With property prices weakening, the firm would also look to buy some sites instead of renting space, she added.
Zhang said an overseas investment bank and a private equity fund had agreed to pay 16 times earnings for their 10 percent stake.
"It's very rare to fetch such a high P/E ratio during a global financial crisis," she said.
Zhang, who declined to name the investors or say how much they are paying, expects authorities to approve the transaction next week.
The outlook for the restaurant industry globally has turned gloomy as expense-account customers and ordinary diners alike tighten their belts.
But Chinese chains have caught the eye of foreign investors.
Private equity firm Actis paid $50 million for a majority stake in Chinese hot pot chain Xiabu Xiabu last week. Another hot pot firm, Little Sheep, attracted investment from 3i Group Plc and Prax Capital before going public in June.
Zhang said South Beauty was budgeting to pay about 300-400 million ($44-59 million) for 20 restaurant sites.
"After next year's Spring festival, with the extra capital, we'll buy some property of our own to cut operating costs," Zhang said in her office in eastern Beijing.
Operating costs are already falling, helping South Beauty's business to hold up well despite the deteriorating economy. Rents had fallen 30 percent on average this year, while the cost of many ingredients -- notably pork -- had tumbled, Zhang said.
Business professionals form South Beauty's core clientele. To lure them back at weekends and on holidays with their families, Zhang launched a loyalty card this month offering a 32 percent discount.
She said the firm had already beaten the target of 116 percent revenue growth for 2008 that she outlined in an interview in May.
"We have already achieved the goal," she said. "For the whole year, our revenue growth will be 150 percent." In 2007 South Beauty reported revenues of about 1 billion yuan ($144 million).
Zhang created the South Beauty brand in 2000, nine years after she opened her first restaurant in Beijing with $20,000 earned while working for three years in Canada. ($=6.83 yuan)