Pacific Textiles Holdings, a Hong Kong textile maker with factories in the mainland, has applied with the Hong Kong stock exchange for an estimated US$200 million initial public offering as early as the second quarter, market sources said.
Pacific Textiles makes cotton fabrics and stretch fabrics, which 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.
Citigroup and Morgan Stanley will arrange the offering. Pacific Textiles failed to return two phone calls requesting comment.
China-based textile makers have made a name for themselves in markets abroad with cheap but high-quality cotton goods. But that niche may be weakening due to a strong yuan and rising labour costs.
'The rise in the renminbi, if it continues, makes the product more expensive than products from places like India and Bangladesh,' said Renee Tai, a Hong Kong-based analyst at CIMB, Malaysia's second-largest bank.
'It's not going to happen overnight but for price-sensitive customers, that will be the deciding factor and they will be looking at where they source their products.'
India's textile industry is ramping up production with government support. Indian companies, however, are still hamstrung by quality issues and poor infrastructure that increases shipping times.
'Labour costs are also escalating because the minimum wage rose 20 per cent to 30 per cent last year in some key production areas, including the Pearl River Delta and Yangtze River Delta,' Ms Tai said.
'While I don't think any of these [textile] factories are paying the minimum wage, when the government announces wage increases they all tend to go up.'
To fatten 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.
Shares of Hong Kong-listed fabric maker Texwinca Holdings have risen 5 per cent this year and trade at 15 times estimated earnings for last year. Huafeng Textile International, also listed in Hong Kong, has seen its shares rise 17.5 per cent this year; they trade at 4.5 times expected earnings last year.