The latest: Restaurant operator Jiumaojiu International Holdings Ltd. (9922.HK) announced late Monday it scrapped its plan to pay 1 billion yuan ($140 million) for 26% of the developer of the Guangzhou IFC Mall Project, a major new retail-office complex in the southern city of Guangzhou. It added the transaction will be completed instead by the company’s chairman and controlling shareholder Guan Yihong.

Looking up: Jiumaojiu is focused on the catering business, sparking a 20.4% decline in its stock the day the original deal was announced as some investors may have questioned such a major move into real estate. Thus, the scrapping of the deal should help to regain investor confidence.

Take Note: Announcement of the deal’s cancellation just four days after it was announced may lead some investors to believe that management’s sudden reversal was too hasty.

Digging Deeper: Founded in 2005, Jiumaojiu transformed from a traditional restaurant business into a chain operator in 2010, operating stores under the “Jiu Mao Jiu” brand. In 2015, it established the Tai Er brand targeting young diners by focusing on trendy “sauerkraut fish” served in a fashionable dining environment. Since then Tai Er has become the company’s main revenue source. The company originally planned to invest in the Guangzhou project as the site of its future headquarters. But the project’s many ties to the local economy made the investment decision look more like a government relations exercise than a commercial one, aimed at currying favor by helping a local project.

Market Reaction: Jiumaojiu rose in early trading on Wednesday and closed up 8.6% at HK$15.70 at the midday break. It is still 3% lower than the price of HK$16.18 before the original announcement of the deal last week.

Translation by Jony Ho

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