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Italian fashion icon Prada started investor education yesterday for a Hong Kong initial public offering that is expected to raise about $2.5 billion. The deal comes hot on the heels of the launch of investor education for Samsonite’s upcoming $1 billion to $1.5 billion IPO last Thursday and suggests there will be a battle for consumer retail-focused investors during the next few weeks.
According to the current timetable, the two deals won’t actually go completely head to head as Samsonite is planning to launch its institutional roadshow a week ahead of Prada, but both deals will be marketing at the same time, which means investors interested in both will have to divide their resources.
These are not the only two deals craving attention in the Hong Kong market right now. Macau casino operator MGM China is currently bookbuilding for an IPO of up to $1.5 billion that will close on Thursday and Australia-based mining company Resourcehouse has already been on the road for one week with its IPO of up to $3.6 billion that is due to close on May 31. Meanwhile, Huaneng Renewables, the wind power unit of China’s largest power producer, which failed to complete its IPO in December last year, re-launched investor education last Thursday for a deal of close to $1 billion.
Bankers say there is enough capital around to absorb all of these deals, as long as they don’t go overboard on valuation. The latter is key since even highly popular IPOs continue to struggle in the aftermarket and as a result investors are becoming more cautious about what to invest in. Commodities trader and mining company Glencore, which started when-issued trading in London last Thursday after raising $10 billion in a dual Hong Kong and London IPO, fell below issue price on Friday and yesterday slipped further to close at £5.14 — 3% below the IPO price of £5.30. The company will start unconditional trading in London on Wednesday and in Hong Kong on Thursday.
Another company to disappoint yesterday was Shanghai Pharmaceutical, which closed at HK$22.65 after finishing flat versus its HK$23 IPO price in its Hong Kong trading debut last Friday. The drug manufacturer and distributor, which is already listed in Shanghai, raised $2 billion ahead of the Hong Kong listing in what currently ranks as the largest Hong Kong IPO this year.
On the other hand, investors are still keen to buy companies that offer a lot of upside, and consumer retail remains a favoured sector. Indeed, Milan Station Holdings, a small-cap retailer of unused and second-hand luxury branded handbags that raised $35 million from its IPO, soared 66% in its trading debut yesterday. The deal was as sought after as its handbags among Hong Kong retail investors, who subscribed for more than 2,100 times the number of shares earmarked for them at a total order value of $7.6 billion.
This should bode well for Samsonite and Prada, given that they too are active in the consumer retail sector. They also have well-known brand names and are associated with high quality and luxury — something Hong Kong and Chinese shoppers appreciate and are willing to pay for. They follow the highly successful listing of French skin care and cosmetic product maker L’Occitane in Hong Kong some 12 months ago, which showed that there is a lot of capital in this part of the world willing to invest in high-end European consumer brands that have a China expansion story.
In a recent report entitled “Dipped in Gold” CLSA argues that luxury goods are set to be the fastest growing consumer category in China in the next five years, with sales expanding at a compound annual growth rate (CAGR) rate of 25%, versus just 11% for general consumption items. At present luxury sales in Greater China represent 10% of the global market and if you include Chinese tourists abroad, it grows to 15%. But, CLSA believes that this will increase significantly thanks to rising incomes and other supportive social factors and projects that Greater Chinese customers will account for 44% of global luxury sales by 2020.
Prada
Prada generated 32% of its total sales out of Asia-Pacific last year, versus 42% in Europe. And according to a source, more than 50% of its customers globally are Asian.
The Milan-based company is growing rapidly, but with its 271 stores globally, it is still lagging behind other designer brands like Louis Vuitton (451 stores), Burberry (380 stores) and Gucci (317 stores). Hence, it will continue to increase its penetration by opening new stores, and a lot of that expansion will take place in Asia, sources say. Most of the company’s stores are self-owned, which means it has full control over the brand, as well as pricing and distribution. And given its strong brand appeal it supposedly doesn’t have any problems securing prime locations to open new shops — something that could otherwise slow down the pace of expansion.
Aside from its Prada brand, which was created in 1913 and account for 79% of its sales, the company also operates the Miu Miu brand, which caters to younger customers, and the two shoe brands Church and Car Shoe.
Among the key investment arguments, sources say, is the fact that Prada remained profitable throughout the latest financial crisis, which shows the loyalty of its high-end customers.
The company will not raise much money from the IPO, however, since 86% of the deal will consist of secondary shares that will be sold by the controlling family. In all, Prada will offer about 16.5% of its enlarged share capital.
The investor education is scheduled to last for two weeks with the formal institutional roadshow set to kick off on June 6. The pricing is scheduled for June 16 and the trading debut for June 24. CLSA and Goldman Sachs are joint bookrunners together with Italian banks Intesa Sanpaolo and Uni Credit.
Samsonite
Samsonite, which is primarily known for it hard-case luggage but also operates other brands such as American Tourister and AT, is being brought to market by HSBC, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and UBS.
It will kick off its formal roadshow on Monday and is expected to price the deal on June 9 with the listing scheduled for June 16.
Samsonite was bought by Luxembourg-based private equity firm CVC Capital Partners in July 2007 for $1.7 billion. RBS provided financing for the deal and when Samsonite had financial difficulties in 2009 the UK bank ended up swapping some of its debt into a minority equity stake. At present CVC owns about 54% of the company, while RBS holds a 30% stake. Both firms will sell about 40% of their holdings in the IPO, meaning a large portion of this deal too will be made up of secondary shares. The rest of the company is owned by CEO Tim Parker (6.5%) and by the rest of the management.
In all, the company is aiming to sell between 40% and 45% of the share capital, which suggests it will have a market cap of about $2.5 billion to $3.3 billion based on the indicated deal size.
While not as big a Prada, which will have a market cap of about $13 billion, Samsonite is about six times bigger than the next largest luggage maker in terms of sales, according to a source. It is an asset-light operator that outsources about 90% of its manufacturing and sells a large portion of its goods through department stores, which translates into good margins.
In the first quarter this year, Samsonite’s sales in Asia grew by 57%, compared to 44% growth in North America, helped by more than 50% growth of the overall luggage market in China and India. By comparison, luggage sales to Europe and the US are growing at around 20% per year. At present, Samsonite has 700-800 points of sales in China, which compares with about 3,000 for a top domestic brand like shoe retailer Belle, which suggests a lot of growth potential. It also explains why the company has chosen to list in Hong Kong as opposed to in Europe or the US where markets are much more mature.
