Toys 'R' Us is said to explore options for US$2b Asian unit

[HONG KONG] Toys "R" Us Inc, the retailer that filed for bankruptcy in North America, has been exploring options for its growing Asian business including a potential initial public offering, people with knowledge of the matter said.

The US chain and its local joint venture partner, the billionaire Fung brothers, have been speaking with investment banks to study the feasibility of listing the Asian business on the Hong Kong bourse, according to the people. A deal could value the unit at as much as US$2 billion, the people said, asking not to be identified because the information is private.

Toys "R" Us and some of its North American subsidiaries filed for bankruptcy last month, though its Asian unit wasn't included in the proceedings. Deliberations are at an early stage, and Toys "R" Us hasn't decided which path to pursue, the people said.

Toys "R" Us owns about 85 per cent of the Asian venture while Fung Group, the private holding company of Hong Kong businessmen Victor and William Fung, holds the remainder.

The ongoing bankruptcy could make a listing more complicated and harder to market to investors. Still, an IPO of the Asian unit would allow Toys "R" Us's private-equity owners to recoup some of their investment by selling shares in a business that's still doing well.

JAPAN, SOUTHEAST ASIA

Growth in Asia Pacific helped offset weaker sales in the US and Europe in the quarter ended April 29, the company said in June. Earlier this year, Toys "R" Us combined its Japanese business with a joint venture running stores in greater China and Southeast Asia. The combined business operates more than 400 outlets, according to its website.

The toy retailer's owners had initially discussed the feasibility of listing the Asian business as early as 2018, but some parties view that timeline as too ambitious because of the complexities related to the bankruptcy proceedings in the US, the people said.

Representatives for Toys "R" Us and its owners, KKR & Co, Bain Capital and Vornado Realty Trust, declined to comment. A spokeswoman for Fung Group also declined to comment.

KKR, Bain and Vornado acquired Toys "R" Us in a US$7.5 billion leveraged buyout in 2005. They stand to have their investment erased as the retailer, which has 1,600 stores across dozens of countries, seeks bankruptcy protection after competition from online rivals and price wars made it difficult for the company to service its debt.

KKR and Vornado had previously written their investments in the company down to zero.

Toys "R" Us Asia was set up in 1986. Local partner Fung Group is also the biggest shareholder in Li & Fung Ltd, a supplier to US retailers including Wal-Mart Stores Inc.

BLOOMBERG