Bloomberg News

Chow Tai Fook Said to Raise $2 Billion as IPO Prices Low

December 09, 2011

Dec. 9 (Bloomberg) -- Chow Tai Fook Jewellery Group Ltd., the company with revenue greater than Tiffany & Co., raised HK$15.8 billion ($2 billion) after selling shares at the bottom of a price range marketed to investors, said two people with knowledge of the matter.

The company sold 1.05 billion shares at HK$15 apiece, said the people, asking not to be identified because the information is private. Chow Tai Fook had offered the shares at HK$15 to HK$21 each, according to its IPO prospectus. Had the jeweler sold the shares above $18.52 apiece, the IPO would have been Hong Kong’s biggest this year.

Chow Tai Fook joins a growing list of companies that have priced their stock offerings at or near the minimum amount sought as stocks have tumbled in Hong Kong amid concerns about Europe’s debt crisis. New China Life Insurance Co. priced its $1.9 billion Hong Kong and Shanghai IPO near the bottom of its marketed range yesterday, and HKT Trust’s $1.2 billion November IPO was priced at the low end.

“The poor reception to IPOs reflects weak global investor sentiment,” said Cedric Ma, Hong Kong-based senior strategist at Convoy Asset Management Ltd., which oversees the equivalent of $260 million. “The market is also looking a little bit crowded since a lot of companies are trying to raise cash at the same time.”

Busiest Month

Chow Tai Fook and New China Life are among companies raising more than $5 billion from initial public offerings in Hong Kong this month. The offerings may make December the busiest month for new share sales in the city this year, data compiled by Bloomberg show.

The jewelry chain, controlled by billionaire Cheng Yu Tung, joins Italian fashion house Prada SpA in raising funds in Hong Kong, where luxury-goods companies tap China’s growing affluence. Prada raised $2.5 billion in June, and its shares have dropped 10 percent from the offer price.

Priced at the bottom of its range, Chow Tai Fook is valued at about 15 times estimated net income for the year ending March 2013, one of the people said. Tiffany, the New York-based luxury jewelry retailer, trades just below 16 times the average analyst estimate for earnings for the year ending January 2013, data compiled by Bloomberg show.

Chow Tai Fook posted sales of HK$35 billion for the 12 months to March 31, 46 percent more than Tiffany’s full-year revenue.

Big Blessing

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. managed the IPO for Chow Tai Fook. Joseph Lo, an external spokesman for Chow Tai Fook at Brunswick Group, declined to comment.

Founded in 1929 in the southern Chinese city of Guangzhou, the company was named after founder Chow Chi Yuen. “Tai Fook” means “big blessing” in Chinese. The company, with more than 1,400 outlets in greater China, plans to start trading on Dec. 15, the prospectus shows.

The shares priced with Hong Kong’s Hang Seng Index down 2.6 percent as of the midday close today. The benchmark is down 19 percent this year. Baoxin Auto Group Ltd, a dealer of BMW and Land Rover cars in China, also priced its $415 million Hong Kong IPO at the bottom of the range marketed to investors, and Citic Securities Co., raised $1.8 billion in September after selling shares in the low end of its pricing range.

Chow Tai Fook has 12.6 percent of China’s jewelry market, with a 20 percent share in Hong Kong and Macau, the company said in the IPO filing, citing a Frost and Sullivan report. It sources rough diamonds from companies such as Rio Tinto and Diamond Trading Co., the distribution arm of De Beers.

Retail sales in China have grown an average of 17 percent in the first ten months of this year, according to data compiled by Bloomberg. In Hong Kong, Chinese visitors splurging on high- end shoes, watches and jewelry have driven monthly retail sales to record highs.

--With assistance from Vinicy Chan in Hong Kong. Editors: Mohammed Hadi, Anjali Cordeiro

To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net


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