PRIVATE-EQUITY firm 3i is poised to reap a bumper profit on an investment in one of China’s largest restaurant chains. The operation, known as Little Sheep, is to be floated in Hong Kong this year for £125m. 3i, which only last week announced that it was quitting the venture-capitalist sector, invested in the Mongolian lamb hotpot cuisine two years ago.

Little Sheep, where diners order from a menu of raw ingredients and then cook the food themselves in a cauldron of broth on their tables, has been a huge success since it was founded in Inner Mongolia in 1999. Within its first five years, the chain grew to more than 700 outlets. But two years ago, half of these were shut after quality concerns emerged at several franchises.

Today the group operates 330 restaurants with outlets in Japan, Canada and America as well as in its home market of mainland China. 3i invested in the group in July 2006, along with private-equity partner Prax Capital, and has played a strategic role in the company’s development.

The news that 3i is to exit the venture-capital industry, in effect creating a £200m hole in the financing of new deals, came as a shock to the sector. 3i was the UK’s largest listed venture investor and in the 1980s was regarded as a powerhouse of early stage “local” venture capital. At this time it invested in about half of Britain’s venture deals but in recent years has shifted its focus to development or growth capital and management buyouts.

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