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Wed 8 Jun 2011 06:40 PM

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Prada leads IPO party

Prada leads luxury goods makers facing the future with Hong Kong listings

Prada leads IPO party
Prada announced record-breaking profits of €250.8m ($351.9m) for 2010, up 150 percent on 2009

Lines
snaking outside Louis Vuitton, Hermes, and Prada shops are a regular sight
along Hong Kong’s Canton Road, the preferred haunt of Chinese tourists on
shopping sprees. Now the Chinese city is becoming a shopping destination of
another sort: It’s a favored place for global brands looking to raise money on
the stock market.

Prada,
the Milan-based luxury goods house, may raise $2bn through its initial public
offering in Hong Kong, according to two people with knowledge of the deal. The
Italian maker of Miu Miu bags and Church’s shoes follows cosmetics and
skin-care maker L’Occitane Internationale SA, which raised $840m in the former British
colony last year.

Prada’s
choice of Hong Kong’s stock exchange over bourses in Milan, London, and New
York is more evidence the world’s economic center of gravity is shifting to
Asia.

“Companies
want to face their future, not their past,” said Sam Kendall, head of equity
capital markets for Asia Pacific at UBS.

The
flurry of international listings is helping Hong Kong, where mainland Chinese
companies have raised $167bn over the past decade by going public, add to its
IPO tally.

Companies
raised $51.8bn through 95 IPOs on Hong Kong’s stock exchange last year, compared
with a total of $48.22bn in 196 deals on the New York Stock Exchange and
Nasdaq.

So
far this year, 26 companies in Hong Kong have gone public raising $7.70bn, compared
with 86 deals worth $26.17bn in the US.

With
Asians accounting for as much as 50 percent of luxury sales globally, a Hong
Kong listing is a no-brainer, said Aaron Fischer, head of consumer and gaming
research at brokerage CLSA Asia-Pacific Markets.

“Most
of the growth is here,” he said. “So as a brand-building exercise, it makes
sense to be close to your customers.”

Chinese
consumers, including those shopping abroad, will account for more than half the
increase in global sales of luxury goods over the next decade, said Fischer,
who is based in Hong Kong.

Samsonite
chose Hong Kong for its IPO mainly because of growth prospects in Asia, said a
person familiar with the matter who asked not to be identified because the
information is private. The US luggage maker plans to open stores in 140 cities
in China, which has the most growth potential for its business, said Ramesh
Tainwala, the company’s president of Asia Pacific and Middle China.

Such
factors were also important to Coach, the largest US handbag maker. It plans to
list shares, in the form of depositary receipts, in Hong Kong before the end of
the year to “raise awareness of the Coach brand among investors and consumers
in the China market,” chief executive Officer Lew Frankfort said in a
statement.

Hong
Kong’s pipeline also includes an initial share sale by the jewelry unit of
billionaire Cheng Yu-tung’s Chow Tai Fook Group, which may raise as much as $4bn,
two people with knowledge of the matter said.

Resourcehouse,
the Australian coal and iron-ore company controlled by Clive Palmer, is seeking
as much as HK$28.2bn ($3.6bn) in an IPO in Hong Kong, according to a term sheet
for the sale.

Another
attraction of Hong Kong is it allows investment banks to make deals with
wealthy investors to buy shares before marketing the deal to the public. Such
“cornerstone” investors typically agree to hold their shares for six months
after buying at the offering price.

Their
participation can make it easier for companies to build enthusiasm for the
offering. “The retail guys are very affected when they see some billionaire
willing to lock himself in for six months,” said George Lin, Asia head of
consumer, retail and health care investment banking at Credit Suisse.

The
initial share sale of MGM China Holdings, the Macau venture of Kirk Kerkorian’s
casino company, may raise as much as $1.5bn for Pansy Ho, who is selling part
of her stake.

Kirk
Kerkorian and a trust fund controlled Hong Kong property magnate Walter Kwok
are among the cornerstone investors, according to the prospectus.

New
China Life Insurance, the Chinese insurer backed by Zurich Financial Services, hired
at least eight banks for the Hong Kong portion of an initial public offering
that may raise as much as $5bn, people with knowledge of the matter said.

United
Co. Rusal, the world’s largest aluminum producer, raised $2.1bn in 2010, and
Swiss commodities trading group Glencore International allocated part of its
$10bn global IPO to Hong Kong retail investors.

“A
Hong Kong listing will raise the profile with all the suppliers and customers
we deal with over there,” Glencore CEO Ivan Glasenberg said.

“We
thought it was very important to be involved in this region.”