Chow Tai Fook Jewelery has been forced to slash the size of its planned Hong Kong listing because of market volatility but still hopes to raise up to $3 billion next month, according to people close to the deal, which could be the city’s largest initial public offering this year.
The jewelery retailer, Greater China’s largest by revenue, had hoped to raise more than $4 billion by floating 15-20 per cent of the business. However, it would now settle for a sale of around 10 per cent, which could yield $2.5 billion - $3 billion to help fund its expansion in China, the people said.
The company blamed the decision to scale back the IPO on the worsening crisis in Europe, they added. Growing fears of a possible default by Italy sent the Hang Seng index down more than 5 per cent on Thursday.
Chow Tai Fook, an 82-year-old company owned by Hong Kong tycoon Cheng Yu-tong and founded by his father-in-law, expects full-year sales of around $4 billion this year, up more than 20 per cent from 2010.
Like other traditional Hong Kong jewelers, the retailer has tended to cater to more local tastes. Alongside western-style diamond necklaces commanding more than $65,000, its stores feature Walt Disney-endorsed Winnie-the-Pooh figurines made of pure gold selling for less than $2,000.
It does not currently compete head-to-head with “ultra luxury” western brands such as Cartier and Tiffany & Co , but analysts said Chow Tai Fook and its Hong Kong peers were likely to move increasingly up-market as mainland Chinese shoppers demand increasingly sophisticated items.
Chow Tai Fook aimed to price the share offering at a current price-to-earnings multiple of up to 30, the people close to the listing said, which would be significantly higher than Tiffany’s multiple of 22, according to Bloomberg data. The largest share sale in Hong Kong so far this year was Prada’s $2.6 billion IPO this summer, according to Dealogic.
The Hong Kong exchange has attracted a number of western consumer brands which want to raise their profiles in China, with London’s Graff Diamonds the latest to plan a listing in the territory.
Sales in the mainland China jewellery market – the second largest in the world after the U.S. — reached $18.5 billion last year, up 56 per cent from a year ago, said Nathalie Longuet, an analyst at Lombard Odier. That figure does not include the billions of dollars that mainland Chinese tourists spend at jewellers in Hong Kong, where there is no value-added or luxury tax and where the same branded item can cost up to 30 per cent less than it would in mainland China.
Chow Tai Fook has over 1,000 shops in mainland China, where it makes around half of its sales, and another 400 in Hong Kong and Macao, where most of the business comes from deep-pocketed mainland tourists.
The company could begin pre-marketing activities as early as next week, the people close to the deal said, if the Hong Kong stock exchange listing committee approves the IPO at a meeting set for later Thursday afternoon.
JPMorgan , Goldman Sachs and HSBC are the IPO’s sponsors and Deutsche Bank is a joint global coordinator.