Contributor Article:
By Vivian Ni
A recent trend has emerged as an increasing number of international luxury brands are deciding to list on the Hong Kong Stock Exchange, proving the recent Hong Kong IPO fever has been contagious – from resource giants like Glencore to other businesses in other sectors that also find accessing the China market a crucial part of their search for future profits.
A relatively small offering by Hong Kong’s second-hand luxury handbag retailer Milan Station has just set a new initial public offering (IPO) record on the Hong Kong exchange, giving a kick to the market which had been sluggish since April. Planning to only raise HK$200 million, Milan Station’s IPO was oversubscribed 2,180 times, smashing a previous over-subscription record of 1,072 times set by Tianjin Port Development in 2006. Its shares surged by 77 percent at one point on its first day of trading on May 23, and closed with a gain of 65.8 percent.
Started in 2001, Milan Station’s business model was initiated by its founder Byron Yiu Kwan-tat’s personal used handbag collection from local celebrities. Pursuing the belief that rich Hong Kong women’s endless pursuit of new luxury items would not end any time soon, Milan Station was always able to find piles of second-hand purses with big fashion names.
Running 11 outlets in Hong Kong and one in Macau, Milan Station has started to see business opportunities brought by the increasing number of wealthy women in Mainland China. Although only seeing revenue of HK$2.5 million from mainland consumers during 2008, the year when it expanded to Beijing, Milan Station’s income surged by 17.4 times two years later to approximately HK$46 million.
Milan Station’s success reinforced its own belief in Hong Kong and Mainland China’s consumption power, and its outstanding IPO performance has confirmed that luxury brand names should and will continue to target the emerging Asian market for future profits.
A recent report on Beijing Daily (Beijing Chenbao) says Milan Station will place even more focus on the mainland market in the future. It plans to use 70 percent of the HK$200 million-capital its IPO raised to open an additional 24 outlets across distinct mainland cities in the next three years.
While Milan Station’s recent strong performance has inspired many luxury brands, it was in fact the French cosmetics and skin care brand L’Occitaine Internationale that kick-started this emerging trend. In its IPO in May of last year, the company raised around US$840 million and has seen its stock price rise 277 percent since then.
The major Italian luxury fashion label Prada is also busy pre-marketing for its June 24 Hong Kong IPO, which aims to raise between US$2 billion and US$2.5 billion. When announcing its Hong Kong plan in March, the company’s chief executive officer Patrizio Bertelli pointed out that by listing closer to its fastest-growing market, the company will seize the best opportunities offered by the international capital markets. Statistics show some 40 percent of Prada’s US$2.8 billion-global sales were generated in Asia.
Another company that has enjoyed the similar “Asian contribution” to its annual earnings last year is the U.S.-based luggage specialist Samsonite International. The company, primarily known for its hard-side suitcases, wants to act more swiftly than Prada and kicked off the institutional marketing for an IPO of up to US$1.5 billion on May 30. Aiming to start trading on June 15, the company will offer 671.2 million shares, with 47.7 percent of its share capital available for public investors at the time of listing. It will also be selling 40 percent of its two major shareholders’ holdings as the company experienced a financial restructuring less than two years ago and is currently owned by private equity arms looking to successfully cash out.
Other big names have also joined the Hong Kong IPO waiting line. British shoe brand Jimmy Choo intends to launch an IPO of US$1 billion according to a report on the Financial Times last month, and Coach, the largest U.S. handbag maker, is also looking forward to a secondary listing in Hong Kong in the form of depositary receipts by the end of the year. Coach’s chairman and chief executive Lew Franfort said on May 10 that the Hong Kong listing is to “raise awareness of the Coach brand among investors and consumers in the China market as well as throughout Asia.”
In addition to the potential revenue offered by China’s emerging consumer market, the Hong Kong stock market itself boasts some attractive features – not only its geographical proximity to Mainland China, but also its depth, liquidity, as well as an active retail investor base that currently shows much passion for upscale consumer product stocks.
The unique “cornerstone investor” system in Hong Kong – which New York does not have – allows investment banks to strike deals with billionaire investors to buy stocks before marketing the IPO to the public. The system sets out that those investors have to hold shares for six months after purchasing at the offering price. The participation of big-name investors for at least half a year can easily affect retail investors, making them more enthusiastic about investing in certain stocks and bringing a more optimistic prospect to companies that are going public.
About the Author
This article about investment in Hong Kong by Vivian Ni was written for 2point6billion.com.
The site is contributed to by Dezan Shira & Associates, who help foreign companies do business in China and maintain accountants in Hong Kong.
