Public shun Prada shares on launch
Despite being one of the most high-profile initial public offerings in Hong Kong, investors appear to find Prada shoes more chic than its shares, with many staying aloof from the offering.
Yesterday was the first day Prada shares were made available to the public, but brokers said the reception was weaker than expected.
Alvin Cheung, an associate director with Prudential Brokerage, said the firmd received HK$1 million worth of margin orders for the shares. Prada is selling 423.3 million shares after picking Hong Kong over its hometown Milan for the float. With shares to be priced at between HK$36.50 and HK$48, the offer will be worth up to HK$20.3 billion.
The Italian company, majority owned by Miuccia Prada and her family, is banking on the increasing spending power from Asia's growing pool of affluent consumers, particularly in China.
If the shares are priced at the top end of the range, Prada would be valued at 27 times projected 2011 earnings. The fashion house has tried to go public several times in the past decade.
Prada said the proceeds from the Hong Kong float would be used to expand its business and repay debt.
But its valuation has been deemed high compared to rivals such as Burberry and Louis Vuitton, which trade in the mid-teens to 20 times range.
Conita Hung Lai-ping, Delta Asia Financial Group's head of equity markets, said Prada's offer price was steep. The capital gains tax and withholding tax on dividends that Hong Kong shareholders must to pay under Italian laws would further discourage investors, Hung said.
Italy and Hong Kong have not signed a double-taxation treaty. That means Hong Kong residents who buy Prada shares will be liable to a 12.5 per cent tax on gains earned by selling their holdings. They will also be subject to a withholding tax of 27 per cent on dividends, Italian law requires.
'Some investors are concerned about the tax,' Cheung said. 'There's nothing like that in Hong Kong. And this is on top of commission and margin financing fees which investors have to pay buying the stock. The market sentiment is pretty weak at present. I am not sure if there's sufficient liquidity around for an offering of this size.'
What's more, poor performances from newly listed companies have deterred investors from buying new stocks, which have fallen on their debuts. Commodities trading giant Glencore International, which raised US$10 billion in an IPO last month, yesterday closed at HK$65, down 2 per cent from its offer price of HK$66.53.
MGM China Holdings, the joint venture between Macau gaming scion Pansy Ho Chiu-king and Las Vegas casino operator MGM Resorts International, closed yesterday at HK$14.36, falling 6 per cent below its offer price of HK$15.34.
The subscription for Prada shares ends on June 16, with a target listing date scheduled on June 24.
The number of stores Prada hopes to open each year for the next three years. HK$3.33 billion will go to debt and towards working capital.