- Title: CHINA: Prada IPO defies expectations in Hong Kong trading debut
- Date: 24th June 2011
- Summary: SIGN FOR ERMENEGILDO ZEGNA STAFF INSIDE STORE SHIRT BEING FOLDED ZEGNA PRODUCTS ON DISPLAY ZEGNA SHOES ON DISPLAY
- Embargoed: 9th July 2011 13:00
- Keywords:
- Location: China, Hong Kong, China
- City:
- Country: Hong Kong
- Topics: Business,Fashion,Finance
- Reuters ID: LVAI3KAKU8CGSBLPZ3I58AXMX44
- Story Text: Italian fashion house Prada SpA rose 1.3 percent in its Hong Kong debut on Friday (June 24), defying expectations for a weak start as investors who couldn't buy into the IPO snapped up the stock during a buoyant market session.
Shares of the Milan-based company, traded as high as 40 HongKong dollars, compared with the IPO price of 39.50 HongKong dollars. They were at 39.55 HongKong dollars at 12:41 a.m. EDT.
Prada, the maker of luxury bags and Miu Miu dresses, raised 2.14 billion US dollars in the initial public offering after pricing it at the bottom of a revised indicative range.
Many other global brands are exploring options to list in Hong Kong and Prada's after-market performance will be critical in attracting such companies to Asia's IPO hub.
Prada's small debut gain surprised some analysts who attributed it to the strength in the broader market up more than 1.4 percent.
Prada had originally set an indicative price range of 36.50 HongKong dollars to 48 HongKong dollars per share, before narrowing it to between 39.50 HongKong dollars and 42.25 HongKong dollars each last Thursday (June 16).
Prada's better-than-expected debut contrasts with a 7.7 percent first-day plunge for Samsonite last week as investors fretted over high valuations for Hong Kong listings and volatility in global markets.
Samsonite has since recovered, ending Thursday at 14.50 HongKong dollars, matching its IPO price.
But the message to future Hong Kong IPO hopefuls was clear, analysts said.
"The luxury market is very hot. Now when you bring an IPO to the Hong Kong market of course you try and play the story; 'we're investing in China, we're going to be big in China, this is our new market.' And that goes down well when you're selling the IPO to investors. But whether or not the IPO does OK doesn't necessarily reflect what's happening in the luxury market and I think the luxury market is still very strong," said KPMG consumer markets analyst, Nick Debman.
Some of the demand for Prada shares on Friday came from fund managers who didn't participate in the IPO, also helping to lift the stock.
Prada's IPO received bids for just half the shares on offer for Hong Kong retail investors, compared with more than 2,000 times over-subscription for the IPO of handbag retailer Milan Station Holdings Ltd, the most popular offering in 2011.
Luggage maker Samsonite had demand worth 1.23 times the volume of shares on offer.
Prada and shareholders Prada Holding BV and Intesa Sanpaolo SpA sold 423.3 million shares in the offering, raising 16.72 billion HongKong dollars (2.14 billion US dollars).
Prada, set up in 1913 by Mario Prada as a business selling leather bags, trunks and silverware to the European elite, has become a global fashion empire, with 319 directly operated stores, a third of which are in Asia-Pacific.
The company received tepid demand from retail investors for its IPO as potential buyers were put off by having to pay Italian capital gains tax.
The IPO valued Prada at about 13 billion US dollars, compared with the nearly 80 billion US dollars market capitalization of LVMH, 28.5 billion US dollars for Hermes International SCA and 21 billion US dollars for PPR SA.
At the revised guidance, Prada would trade at a price to-earnings ratio of 22.8-24.4 times, more in line with global rivals.
The move by retailers such as Prada to list in Hong Kong is part of a trend to raise brand awareness in China, the world's fastest growing luxury market.
More than 100 second-tier cities have populations with more than 1 million people and consumers in these cities have both the buying power of their tier-one peers and an interest in luxury brands.
China's consumption of luxury goods is forecast to grow 18 percent annually to about 27.51 billion US dollars by 2015, from about 12.23 billion US dollars in 2010.
Brands such as Prada, Gucci and LVMH vie for Chinese shoppers, whose appetite for luxury goods is expected to make China the world's biggest luxury market within five years.
"I don't think it will be five years, I think it will be the next three years. The way things are growing they're going to be very quickly the number one market in the world for luxury. But not only in China but also the other main shoppers of luxury around the world. For example Paris. When you go to Paris, who's queuing up in front of the luxury shops? Chinese. They used to be Japanese but now it's mainly Chinese," said Shanghai Tang's chairman, Rafael Le Masne De Chermont.
Shanghai Tang, founded in 1994 set out to rejuvenate Chinese fashion. In 1998 it was acquired by the Richemont Group.
Le Masne De Chermont said that the brand's growth is fuelled largely by mainland Chinese. It's main focus therefore is China, with plans to open 10 stores there over the next year to add to its 16 current stores around the world.
While research shows that Chinese consumers are exposed to an international lifestyle and are increasingly proud to be Chinese, the industry maintains that the "heritage" of Western brands still appeals.
"I think more and more people would become fans of luxury brands. Of course there are reasons such as them employing famous models for advertising and using famous designers. This kind of concept is something that would last. That's why I feel luxury brands exist for such reasons," said Shanghai resident Jennifer Guo.
Some in the industry say China is still in the early stages of developing its own strong luxury brands.
Retailers also need to be sensitive to how luxury goods are perceived. Officials in Beijing recently banned advertising in the capital that promotes hedonism or the craven worship of foreign products.
Still, analysts expect more home-grown luxury brands to arise over the next five years, especially in China's bigger cities where demand for uniqueness should track economic growth. - Copyright Holder: REUTERS
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