The Chow Tai Fook Group, which is controlled by Hong Kong tycoon Cheng Yu Tung, has mandated seven banks for the initial public offering of its jewellery unit, according to sources. The IPO, which is expected in the first quarter of 2012, could raise as much as $4 billion.
The sources said that Deutsche Bank, Goldman Sachs, HSBC and J.P. Morgan have been named as global coordinators for the offering, while Citi, Credit Suisse and UBS will join them as joint bookrunners.
Given the large size of the deal and the group’s high profile in Hong Kong, this was one of the more fiercely contested mandates in recent months, together with those for China Guangfa Bank (previously known as Guangdong Development Bank) and Citic Securities. Guangfa, which is 20% owned by Citi, is seeking a dual listing in Hong Kong and Shanghai and may raise more than $5 billion. Citic Securities, which is China’s largest brokerage firm, is already listed in Shanghai, but is aiming to raise about $3 billion from a Hong Kong share sale and listing.
Deals of this size are attractive both because of the fees they pay and the league table credits, but given that Chow Tai Fook and Guangfa have each mandated more than five banks, the benefit will not be as great as it could have been. However, a $4 billion IPO that pays a 2% base fee will result in about $80 million of revenues for the arranging banks, and then there may well be additional performance fees paid on top of that.
Chow Tai Fook Jewellery Co was founded in Guangzhou in 1929 by Chow Chi Yuen, the father-in-law of current owner Cheng Yu Tung, who is also chairman of Hong Kong-listed property conglomerate New World Development. It opened its first store in Hong Kong in 1946, has an estimated market value of over HK$100 billion ($12.8 billion) and annual sales of more than HK$30 billion, which makes it one of the largest jewellery brands in Hong Kong and mainland China, according to the group’s website. It specialises in diamonds, and has more than 1,000 retail outlets spread across China, Hong Kong, Macau, Taiwan and Malaysia. The website states that it plans to increase the number of stores to more than 2,000 by the end of 2020.
According to various media reports, Chow Tai Fook Jewellery’s global branding director, Alan Chan, told participants at the Reuters Global Luxury Summit in Hong Kong on Monday that the company aims to open 200 new stores every year, and added that 90% of them will be located in China.
Aside from the stores, the company also owns two diamond-cutting facilities in South Africa and one in China. Its jewellery design and manufacturing plants in China and Hong Kong produce more than 7 million pieces of jewellery every year.
Guangfa has reportedly mandated Bank of America, Citi, Deutsche Bank and Goldman Sachs as global coordinators for the Hong Kong portion of its offering, with Credit Suisse and Macquarie Group as joint bookrunners. Citic Securities and Goldman Sachs Gaohua Securities will manage the Shanghai A-share portion. The deal is expected either late this year or early 2012.
Meanwhile Citic Securities has mandated BOC International, CCB International and its own investment banking unit, Citic Securities International, for its upcoming offering, which could come as early as the third quarter. It has said that it plans to list 10% of the company, or 1.27 billion shares, in Hong Kong.
