L'Occitane, a French company that makes and sells cosmetics and skincare products, has started investor education for a Hong Kong initial public offering (IPO) of up to $700 million. The company has chosen the Hong Kong bourse over Paris, confirming its determination to make the most of the strong growth in the region.
And given that the Chinese word for Hong Kong translates into "fragrant harbour" in English, what better place to list for a company that makes a living from selling fragrant beauty products.
If successful, L'Occitane will become the first French company to list on the Hong Kong stock exchange, and will make investors and analysts turn their noses towards the lavender, olive and essential oils planted in the Provence region of Southern France, which are the major ingredients of the company's products. L'Occitane's production facilities are based in the same region.
The investor education, which began on Wednesday this week, is believed to be relatively easy since the French brand is well-known and Asian tourists are fascinated by the scenery of Provence, which is a popular holiday destination. The deal is being arranged by CLSA, HSBC and UBS.
L'Occitane is looking to sell 25% of its enlarged share capital to fund its global expansion; the launch of the institutional bookbilding is scheduled for April 20, according to sources.
Investors are questioning why the company has decided to list in Asia instead of in its home market, and they are also asking about the brand's growth prospects in Asia, a source said. But "the feedback is very positive", he said.
Known as L'Occitane en Provence, the company currently has stores in more than 85 countries around the world, according to its website. Asia currently makes up over 40% of L'Occitane's global business and is approaching 50%, sources said.
European consumer brands are generally sought after in Hong Kong, encouraging local retailers to name their companies and brands with Western sounding names. Hong Kong-based Café de Coral is one of the largest Chinese fast-food chains in Asia, and the city's two major casual wear chains are called Giordano and Bossini despite the fact that the chains have no relation to the West at all.
Bawang International is the best stock to compare with, people familiar with L'Occitane say. The Guangdong-based herbal shampoo producer and retailer raised $215 million in a Hong Kong IPO in July 2009, which was one of the most popular IPOs in the city last year, based on the fact that the retail tranche was 430 times covered. Bawang jumped 29% on its first trading day and has surged 148% since its listing to trade at a 2010 price-to-earnings ratio of 42 times.
The Hong Kong IPO of Chinese sportswear company 361 Degrees International, which was bought to market at the same time as Bawang, was also well received. The company raised $231 million after selling 25% of its shares at HK$3.61 each -- a price that was set as a symbol of the company name.
Tokyo-listed Shiseido can also be put in the same category as L'Occitane, bankers suggested. The Japanese company, whose share price has increased 12% so far this year, is trading at a P/E of nearly 37 times.
Retail consumption stocks have a positive outlook this year thanks to recovering consumer confidence, said Kingston Lin, director of OSK Securities. "Shares in L'Occitane will have fairly decent secondary-market performance, however [its] share sale may not be as hot as Bawang's, because Bawang is well-connected in China and its deal was supported by lots of capital from the Chinese mainland," he added.
The Hong Kong bourse has already seen a couple of foreign company listings in the first quarter. Russian aluminium producer Rusal raised $2.24 billion, making it the largest Hong Kong IPO so far this year, while Mongolia-based coal producer SouthGobi Energy Resources reaped $373 million from its initial share sale.
