HONG KONG—The financial community here is enthusiastically embracing the idea of a Prada IPO taking place on its home turf.
“It’s going to be very popular, especially on the retail side,” said Ben Collett, head of equities at Louis Capital Markets in Hong Kong.
The Italian luxury goods house said late last week that it is planning to finally carry out its long-awaited IPO on the Hong Kong Stock Exchange after several stalled attempts at going public. But the company did not specify a time frame or the size of the stake to be sold.
Hong Kong market watchers say Prada’s decision to list in the city makes sense, given Hong Kong’s proximity to the world’s fastest growing market: China. As the traditional gateway to China and the only Chinese exchange fully open to international investors, Hong Kong has seen a rush of investment as global investors seek higher returns in China. Investors are keen on the China growth story and wiling to pay a premium for it, according to market watchers.
The speculative nature of the Hong Kong market and its liquidity also help drive valuations higher, Collett said. Market watchers have talked of market capitalization for Prada of up to $10 billion. There’s also hope that Prada will open the door to more listings in Hong Kong by luxury European goods providers. Last year, Hong Kong led the world with the most IPOs, raising a total of $52.9 billion in new stock offerings.
Hong Kong still trails New York, London and other international exchanges in the number of foreign issuers. But the bourse has become increasingly popular with international companies. There were a total of 130 overseas issuers in Hong Kong at the end of 2010, or about 9 percent of a total of 1,413 listed issuers. That’s up from 7 percent in 2006.
Prada’s anticipated listing comes months after French skincare maker L’Occitane International SA became the first French firm to list on the Hong Kong exchange with its $787 million offering in May, attracting strong demand from investors.
Market watchers said that from a location standpoint, Prada’s listing in Hong Kong makes a lot of sense. Luxury goods are set to be the fastest-growing consumer category in China over the next five years,” CLSA analyst Aaron Fischer wrote in a recent report, adding that China will account for half of global growth over the next 10 years.
China is on track to surpass Japan’s luxury market by 2014, Fischer said. For Prada, revenue from China, Hong Kong and Macau rose 75 percent in 2009, making up 20 percent of the group’s total revenue.
CLSA is, along with Goldman Sachs, Banca IMI-Intesa Sanpaolo Group and UniCredit, a joint bookrunner on the deal.
In this rush to luxury, European brands have an advantage, CLSA’s Fischer said. While “it is only a matter of time before Chinese luxury brands are established at home…we expect this to happen in product categories where China has a perceived fundamental advantage, primarily in the use of materials such as jade, porcelain or precious woods,” he reasoned.
To be sure, there are uncertainties in Prada’s listing. The luxury goods maker has postponed its IPO several times citing market volatility. Some worry that the environment this time around may not be receptive either.
Castor Pang, research director at Cinda International Holdings Ltd., noted that China’s consumer stocks have not been trading very well since the beginning of the year, as inflation concerns are making consumers cut back on spending.
Concerns about inflation and slowing growth in China have weighed on Chinese indices. Since early November, the Hang Seng is down almost 6 percent and the CSI 300 index, which follows the top 300 companies trading on the Shanghai and Shenzhen stock exchanges, is down about 13 percent. By comparison, the MSCI Emerging Markets index is down about 2 percent for the same period.
“Investors are quite like this kind of consumer-related stock, especially for luxury goods,” but market reception will depend on the IPO’s pricing, Pang said.