By  on June 19, 2011

HONG KONG — Prada SpA has priced its initial public offeringon the lower end of its freshly narrowed price guidance and will raise$2.14 billion from the deal, according to sources familiar with thesituation.

The Italian fashion house has priced its shares at39.50 Hong Kong dollars, or $5.06 a share, sources said Friday. Facing atepid reception for retail shares and slumping stock markets worldwide,Prada’s IPO price comes in on the bottom of the most recent priceguidance of 39.50 Hong Kong dollars to 42.25 Hong Kong dollars, or $5.06to $5.42 a share.

On Thursday, Prada had issued guidance to thelower end of an indicative price range, according to a person familiarwith the situation.

A Hong Kong-based spokeswoman for Prada’sIPO declined to comment.

While institutional demand for thelisting has been strong, retail demand has been weaker, sources said.The institutional portion of the offering was oversubscribed nearlythree times, while only half of the retail portion got orders, accordingto one of the sources. In response, the offer will be reallocated toreduce the proportion of the retail portion to 5 percent of the totalfrom an original 10 percent, said a source familiar with the operation.

Marketwatchers said Friday that the jumpy Hong Kong market was the mainculprit damaging sentiment.

“Even the power of internationalbranding cannot make the deal attractive and give it a highervaluation,” said Castor Pang, head of research at Hong Kong brokerageCore-Pacific Yamaichi International Ltd., citing a soft market forIPO’s.

Some investors considered the price too high and havebalked at the fact that Hong Kong residents are subject to pay a 12.5percent Italian capital gains tax.

Even pricing at the lower endof its range, Prada shares still have a higher valuation than someother luxury players such as LVMH Moët Hennessy Louis Vuitton, saidPang.

Prada did considerable marketing for the listing. Thereare Prada ads all over Hong Kong and the fashion house set up a specialfashion show earlier in the month. Still, reception was stronger in theEurope and U.S. with the book split 30 percent Europe, 50 percent in theU.S. and only 20 percent in Asia.

The $5.06 per share pricevalues the entire company at $12.97 billion and places Prada in achallenging starting position for June 24, where its shares willcommence trading on the Hong Kong stock exchange. Pang said he sees thelisting falling on the first day of trading.

Samsonite, whichsimilarly priced its shares on the lower end of its initial range, sawits shares slide more than 7 percent from its offer price on its firstday of trading on Thursday.

Daniel Harris, operations directorat H2O Markets Ltd., said Prada’s offering price, though at the lowerend of the expected price range, “still represents 23 times thecompany’s estimated 2011 net income, higher than 22.3 times of Burberrywhich has considerably more stores in China than Prada.” Referring tothe capital gains tax, whether Prada is listed in Hong Kong or the U.K.,“investors are liable to pay tax on capital gains, [so] this isunlikely to discourage investors in light of the potential upside.”

Pradais the second largest listing in Hong Kong and the fifth largest IPOtransaction in the world so far this year, according to Dealogic.

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