Economy hotel chains take root in China

One of the newest business segments to take root in China's growing economy in recent years is something that most Americans take for granted: economy hotel chains.

While China's urban dwellers and business travelers are well acquainted with luxury and midpriced hotel brands from Marriott International Inc and Hilton Hotels Corp, the rest of the lodging industry remains fragmented, dominated by guest houses and other privately owned properties.

But with almost every aspect of China's economy growing explosively, from heavy industry to disposable income, the demand for a standardized chain of lower-priced hotels is growing.

A four-year-old company named Home Inns and Hotel Management Inc (如家快捷酒店) is hoping that it can build its brand with budget travelers. Based in Shanghai, the company operates 82 hotels under the Home Inn brand in 26 Chinese cities; its biggest shareholder is Poly Victory Investments Inc, a British Virgin Islands company owned by state-run enterprise Beijing Tourism Group.

Home Inns filed with the US Securities and Exchange Commission last week to launch an initial public offering on the NASDAQ Stock Market in coming months. Although it hasn't specified how many US depository shares it intends to sell, or at what price, the company is aiming to raise as much as US$80 million, according to the filing.

The fact that Home Inns is focused solely on China, and in a relatively new business segment, could be a big attraction to investors, say observers.

Benjamin Wey, president of investment bank and consulting firm New York Global Group, says his friends have stayed in Home Inns during their travels in China, and found the accommodations to be comparable to the US-based Motel 6, a unit of Paris-based Accor SA, or a Comfort Inn, operated by Supertel Hospitality Inc.

"This is a well-recognized brand name in China," says Wey, whose firm is not an underwriter on the deal.

"It's used by budget-conscious travelers and small-business travelers who don't have the luxury of air travel, and are driving from city to city," he says.

Home Inns has another 57 hotel properties under development, and plans to use the proceeds from its IPO for capital expenses and to repay debt. In the first half of the year, its total revenue more than doubled to US$31.2 million, and its net income tripled to US$3.4 million as the number of its hotels grew from the same period of last year.