The shoemaker set the price at the top of its HK$12.50 to HK$15.50 indicative range, pocketing HK$3 billion ($387 million) from the offering. Stella offered 195 million new shares, which amounts to 25% of its enlarged share capital. A 15% greenshoe can increase the deal size to $445 million if exercised in full.
The final price values the company at 13 times its 2008 earnings, which translates into a premium to Yue Yuen IndustrialÆs 11.7 times. However, one should note that Yue Yuen is not fully comparable to Stella since it is a larger manufacturer specialised in athletic footwear and its fiscal year also ends in September, which makes the valuation horizon slightly shorter.
According to a source, StellaÆs retail tranche was around 40 times covered, triggering an automatic clawback that increased the size of this tranche to 30% from 10%. About 1% of the retail tranche was reserved for company employees. After the clawback the institutional tranche was 25 times covered post-greenshoe.
Given the recent IPO buying spree among Hong Kong retail investors, it is a rarity to see an IPO without a full clawback. They do happen, however, and earlier this month the IPO of RREEF China Commercial Trust attracted modest orders from both institutional and retail investors, resulting in no clawback at all. The lack of interest for that deal was widely ascribed to the fact that it is a real estate investment trust (Reit) û a structure which has so far failed to excite Hong Kong investors. A majority of the seven Reits that have listed so far still trade below their issue price.
Almost 300 orders came into StellaÆs institutional book, however, and there was insignificant price sensitivity, according to a source. A geographical breakdown shows that nearly half of the demand came from Asia, while the remainder was evenly split between Europe and the US.
Stella designs and manufactures footwear products for a range of leading casual fashion footwear companies and large well-known chain-store retailers as well as for high-fashion brands worldwide. The manufacturer brought in Dickson Poon, chairman of Hong-Kong listed retailer Dickson Concept, as a cornerstone investor. Poon committed $30 million for a stake of roughly 1.9% of the company at the time of listing.
Goldman Sachs was the sole bookrunner on the deal.
Stella recorded net profits of $91.4 million in 2006, which represented 7% growth from the previous year. This came on the back of a 62% increase between 2004 and 2005. Revenue growth has been more stable, with an increase of 16% in 2005 and another 16% in to $779 million last year.
Stella projects its profit will grow by 14% to $104 million this year, while revenues are expected to continue to expand at a compound annual growth rate of 16% from 2006 to 2008 and, according to another source. The growth will be driven by increasing outsourcing of European brands to Asia.
Following the footsteps of its peers, Stella established a retail business in 2006, selling its own footwear and accessories products under the brand Stella Luna. It also entered into an agreement with Marc Fisher LLC to sell Guess womenÆs fashion footwear in China. The company currently has 41 flagship stores, boutiques and concessionary shops in 18 major China cities, and plans to add 25 more this year. It also runs three stores in Thailand and plans to open three more this year.
The company has four manufacturing facilities in the Guangdong province with 36 production lines, as well as six other facilities in China and Vietnam.
Its customers comprise a range of well-known footwear companies and brands, including casual footwear companies Clarks, Deckers, Rockport and Timberland; fashion footwear companies Cole Haan, Kenneth Cole and Nine West; high-fashion brands Celine, Christian, Emilio Pucci, Givenchy, Kenzo, Loewe and Marc by Marc Jacobs; as well as large chain-store retailers like J.C Penney, to mention but a few.
Of the net proceeds, roughly 44% will be reserved for mergers and acquisitions opportunities, while 27% will go towards the repayment of a short-term loan made to finance pre-IPO special dividend payouts. The company will also spend about $65million to expand its production capacity and retail business.
The trading debut is scheduled for July 6.
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