IT vows to make amends
Management to improve governance as IPO-bound firm draws flak over lending
Listing candidate IT has pledged to improve corporate governance in response to criticisms over insider lending and a controversial pre-listing dividend.
The popular retail fashion chain also distributed a $190 million dividend to existing shareholders yesterday, ahead of this week's initial public offering.
The dividend was financed by a $68.2 million bank loan and a set-off from the firm's $121.8 million in advances made to related companies, directors and related parties.
Managing director Sham Kar-wai yesterday vowed that such lending practices would be abandoned now that IT was going public. 'Previously, [IT] was my private company and there may be some arrangements not in line with best practice. But after the listing, the relationship [with the company] will be different and we will just be the shareholders. I guarantee such practices will not happen again.'
Mr Sham declined to elaborate on specific corporate governance measures the company would take.
'For the moment, you can trust what the company says. The management quality seems to me of a high standard and pretty transparent,' one fund manager said. 'My key concern is its aggressive expansion ... Hong Kong retailers are still subject to margin contraction risks as rentals rise and mainland outlets are still posting losses.'
IT has 89 stores in the mainland run by a 50-50 joint venture with Glorious Sun and plans to open 60 to 80 stores in the country in the next three years. In Hong Kong, it plans to open 23 stores by February next year, with a total floor area of 120,000 square feet in new retail space within three years. It now has 129 stores in Hong Kong contributing about 98 per cent of business.
Some people are more optimistic about the expansion.
'The company has strong marketing capabilities and celebrity connections to sell brands,' said another fund manager, who believed IT deserved to trade at a similar valuation to Esprit Holdings, which has a price-earnings ratio of 21.93 times.
IT is seeking up to $593.8 million through the sale of 304.54 million shares at an indicative price range of $1.75 to $1.95 each, or 16.5 to 18.4 times earnings for this financial year, which ends this month. CLSA is lead-managing the offer.
'It's not cheap, but many still see a 10 to 20 per cent upside on the first day of trading,' the second fund manager said.
Sources said the placing tranche - 90 per cent of the offering - was more than 10 times subscribed. It will close on Friday. The retail tranche opens today. Trading is expected to start on March 4.
