Pacific Textiles in US$200m IPO

PUBLISHED : Monday, 11 December, 2006, 12:00am
UPDATED : Monday, 11 December, 2006, 12:00am

Hong Kong-based firm seeks funds as fragmented textile industry in the mainland faces consolidation

Pacific Textiles Holdings, a Hong Kong-based textile maker with production facilities in China, plans to raise about US$200 million in an initial public offering next year, market sources said.

The company declined to comment.

Pacific Textiles raised about US$150 million in a private placement to a number of hedge funds this year, sources said.

Analysts say the fragmented mainland textile market is due for consolidation and this will benefit Pacific Textiles and other foreign companies that have cash.

'They have the operating efficiencies and capabilities in place more than the domestic players,' said Renee Tai, a Hong Kong-based analyst at CIMB, Malaysia's second-largest bank. 'They all have the same customer base - the Gaps and the Limiteds of the world - but in terms of environmental and social issues [overseas customers] won't have problems.'

China-based textile makers have made a name for themselves in the international market with cheap but high-quality cotton goods.

Pacific Textiles makes cotton fabrics and stretch fabrics that are blends of cotton and synthetic fibres such as polyester and spandex. It also produces the yarns used to make such fabrics.

The company's annual production capacity is 50 million kilograms of fabric. It has factories in the Panyu district of Guangzhou. Fabric makers have been relocating out of nearby Dongguan, where China's textile industry has traditionally been based, as rents rise.

Shares of Hong Kong-listed fabric maker Texwinca Holdings have dropped 3 per cent this year and trade at 11 times forecast 2006 earnings. Huafeng Textile International, also listed in Hong Kong, has seen its shares rise 15 per cent this year; they trade at five times expected 2006 earnings.

'Order flows are going well with fabric companies and they are expanding, but it comes down to a matter of selling prices,' Ms Tai said. 'When it comes to fabrics, it's a real commoditised product where everyone knows your costs.'

To try to fatten their profit margins, textile manufacturers are turning to embellished fabrics, many with bead or sequin designs. They are also providing more customised services to international clients, giving advice on how best to use their products and working with retailers to design apparel for specific markets.

Chinese fabric makers face a long-term competitive threat from India, which is ramping up production with government support. However, Indian companies are still hamstrung by quality issues and poor infrastructure that increases shipping times.

Worldwide, textile makers' costs have been stable this year as raw materials prices have been flat. The Cotlook price index, a cotton industry benchmark, has been range-bound this year at 50-60 US cents per pound of cotton. That trend is expected to continue into next year.