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

This story first appeared in the June 20, 2011 issue of WWD. Subscribe Today.

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

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

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

While institutional demand for the listing has been strong, retail demand has been weaker, sources said. The institutional portion of the offering was oversubscribed nearly three times, while only half of the retail portion got orders, according to one of the sources. In response, the offer will be reallocated to reduce the proportion of the retail portion to 5 percent of the total from an original 10 percent, said a source familiar with the operation.

Market watchers said Friday that the jumpy Hong Kong market was the main culprit damaging sentiment.

“Even the power of international branding cannot make the deal attractive and give it a higher valuation,” said Castor Pang, head of research at Hong Kong brokerage Core-Pacific Yamaichi International Ltd., citing a soft market for IPO’s.

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

Even pricing at the lower end of its range, Prada shares still have a higher valuation than some other luxury players such as LVMH Moët Hennessy Louis Vuitton, said Pang.

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

The $5.06 per share price values the entire company at $12.97 billion and places Prada in a challenging starting position for June 24, where its shares will commence trading on the Hong Kong stock exchange. Pang said he sees the listing falling on the first day of trading.

Samsonite, which similarly priced its shares on the lower end of its initial range, saw its shares slide more than 7 percent from its offer price on its first day of trading on Thursday.

Daniel Harris, operations director at H2O Markets Ltd., said Prada’s offering price, though at the lower end of the expected price range, “still represents 23 times the company’s estimated 2011 net income, higher than 22.3 times of Burberry which has considerably more stores in China than Prada.” Referring to the 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 is unlikely to discourage investors in light of the potential upside.”

Prada is the second largest listing in Hong Kong and the fifth largest IPO transaction in the world so far this year, according to Dealogic.

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