Hong Kong/Milan: Italian fashion house Prada SpA cut the final price of its IPO by almost a fifth, raising $2.1 billion, as investors balked at a rich valuation and weak global markets.
The maker of luxury bags and Miu Miu dresses set what is Hong Kong’s biggest IPO this year at the lowest end of its revised indicative price range, sources with direct knowledge of the deal said on Friday.
Prada’s move came a day after luggage brand Samsonite International slumped almost 8% in its Hong Kong trading debut.
Indeed, only MGM China has posted a first-day gain among the largest IPOs in Asia this year, reflecting investor caution at risking capital in weakening markets. Hong Kong stocks have risen in only one session in the last 12.
“In the short term, it (volatility) certainly will have an impact on any IPOs in Hong Kong,” said Philippe Espinasse, a former investment banker with Nomura and UBS in Hong Kong and author of “IPO: a Global Guide.”
“The market is going through a very difficult phase. There’s been an awful lot of volatility in Hong Kong.”
Milan-based Prada priced its initial public offering at HK$39.50 a share, the bottom of a revised indicative price range issued on Thursday, three sources with direct knowledge of the deal told Reuters. Prada had originally targeted garnering up to $2.6 billion.
Despite all the glamour around the IPO, increased volatility in global markets and Samsonite’s poor debut weighed on the offering, with Prada cutting the mid-point of its IPO on Thursday.
“The equity market has its own life and may not have anything to do with reality in luxury goods markets,” Selina Sia, head of consumer research at Mirae Asset in Hong Kong, told Reuters on Thursday.
“Luxury demand is very self explanatory and it makes a lot of sense for companies like Samsonite and Prada to list in Hong Kong, but we’re talking about quite a volatile market these days.”
Prada and shareholders Prada Holding BV and Intesa Sanpaolo sold 423.3 million shares raising HK$16.72 billion ($2.14 billion), said the sources, who declined to be named because the decision was not yet public.
The deal was the biggest IPO in Hong Kong so far in 2011, surpassing the $1.96 billion by Shanghai Pharmaceuticals in May.
The IPO values Prada at about $13 billion, compared with the nearly $80 billion market capitalization of rival LVMH, $28.5 billion for Hermes International SCA and $21 billion for PPR SA.
Luxury demand strong
The company has come a long way from the shop Mario Prada opened in 1913 in Milan’s most famous and prestigious shopping arcade, Galleria Vittorio Emanuele II. What started as a business selling leather bags, trunks and silverware to the European elite has become a global fashion empire with 319 directly-operated stores, one-third of them in Asia Pacific .
Prada’s choice of Hong Kong as a listing venue was controversial at home in Italy, but owner and designer Miuccia Prada said last week that the decision was an easy one, given China’s relevance as a major economy and its voracious appetite for luxury products.
China’s consumption of luxury goods is forecast to grow 18% annually to about $27.5 billion by 2015, from about $12.2 billion in 2010, according to consultancy McKinsey.
Plans by Prada and other retailers such as Samsonite to list in Hong Kong are part of a trend to raise brand awareness in China, analysts say.
Prada last week hosted a 15-minute fashion show in Hong Kong to a packed room of top fund managers who jostled for space at the glitzy Grand Hyatt Hotel to see Miuccia Prada’s creations and hear about booming demand for luxury goods in China.
At its home in Milan, the company’s management spoke to investors in an office of Prada’s Miu Miu brand, its fastest growing line of business that is known for its modern and colorful dresses and handbags.
“It has been a successful deal, in spite of the market’s volatility,” said one of the sources. “The company has been priced at premium compared to the peers and with an important level of oversubscription in the institutional part.”
The deal was nearly three times oversubscribed at the IPO price, another source said.
Still, a backdrop of volatile global markets cast a cloud over Prada’s Hong Kong listing.
The benchmark Hang Seng Index has declined in 11 of the last 12 sessions, down 7.6%, and world stocks hit a three-month low on Thursday, weighing on investor demand for new stock sales.
Samsonite fell as much as 11% early on Thursday, though on Friday it recouped some of the loses and gained about 1%.
On top of volatile markets, Prada also had to deal with concerns from fund managers about its rich valuation, and tepid demand from Hong Kong retail investors who were put off by having to pay capital gains taxes in Italy.
Prada filed to sell shares at an indicative price range of HK$36.5 to HK$48 each, before narrowing the range to between HK$39.50 and HK$42.25 a share, according to two sources with knowledge of the deal on Thursday.
At the top end of its original range, Prada would be trading at 27 times projected 2011 earnings, far higher than an average of 20.4 times for luxury retailers such as LVMH, Hermes, and Cie Financiere Richemont , according to Phillip Securities forecasts.
At the revised guidance Prada would trade at a P/E of 22.8-24.4 times, more in line with global rivals.
Goldman Sachs , Credit Agricole’s CLSA brokerage and Italian banks UniCredit SpA and Intesa Sanpaolo’s Banca IMI unit, which are both represented on Prada’s board, are joint bookrunners and global coordinators of the IPO.