The heels are alive
Branded IPOs are hitting Hong Kong. In a city equally obsessed with shopping and investing, luxury-retailer listings make a lot of sense.
The strong familiarity of the big names in the region drives interest and cash to their fundraisings. And the IPO marketing process is a huge branding exercise for the label. The end result, with luck, is a successful listing and increased sales.
It is no coincidence that the firms looking to list here see Asia in general, and China in particular, as key growth markets. The boost in profile earned from a Hong Kong float apparently offsets the downside of listing away from their home markets, outside the time zone of headquarters and away from the analysts who cover competitor firms in Europe and the US.
Milan-based Prada is a case in point. The fashion house is looking to raise up to US$3 billion with a Hong Kong listing.
The firm is generating flat or declining sales in its mature markets of Europe, North America and Japan. Its big bright spot for growth is China. (See the Prada pricing feature on the facing page.)
The American luggage firm Samsonite, which is looking to raise between US$1 billion and US$1.5 billion in Hong Kong, also views Asia as essential to growth.
Prada generated 32 per cent of its total sales from Asia-Pacific last year. Samsonite reported first quarter Asian sales growth of 57 per cent compared to last year.
Edmond Chan, a partner with the capital markets arm of PricewaterhouseCoopers (PwC), says several global brands are monitoring the Prada and Samsonite floats.
If these listings do well, others will follow, he says. 'If the luxury brand IPOs currently in the pipeline do well, we can expect more brand owners to consider listing in Hong Kong,' says Chan.
He says international issuers are eying Hong Kong's deep reserves of investing capital and its proximity to the rich mainland market.
'There is a lot of liquidity in this part of the world that would be willing to consider investing in high-end consumer brands that have a greater China growth story. It also makes sense that brand owners want to list their companies in Hong Kong to raise their profile and be close to the client markets where they are investing,' Chan says.
Hong Kong-based secondhand luxury products and handbag retailer Milan Station, which raised US$35 million from its IPO, saw its float covered a record 2,179 times.
Last year, French cosmetic maker L'Occitane surprised the market when it succeeded in raising over US$700 million in a well-subscribed Hong Kong offer.
Firms reported to be considering Hong Kong as a listing centre include US handbag maker Coach and British shoemaker Jimmy Choo.
Italian luxury goods maker Ferragamo, whose shoes have been worn by stars like Marilyn Monroe, is also reported to be considering a Hong Kong float, although the firm says no decision has been taken on a share offering.
A report by the brokerage CLSA predicts 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 of 25 per cent, versus 11 per cent for general consumption items.
Taking into account rising incomes, the world's fastest expansion of millionaires and the aspirations of the growing middle class, CLSA believes greater China customers will account for 44 per cent of global luxury sales by 2020.
CLSA's Dipped in Gold report says, at present, luxury sales in China represent 10 per cent of the global market.
This figure rises to 15 per cent when luxury good purchases made by Chinese tourists abroad are included.
Catherine Yeung, an investment director with Fidelity International, says Hong Kong listings of European and American branded companies fit the Asian consumption story.
Incomes are rising and governments are encouraging consumer spending, and luxury goods are taking off.
- Prada IPO looks to raise US$3 bn
- Prada's Asian sales are up 51%
- Milan Station IPO: US$35 m
- L'Occitane IPO: US$7 bn