Bloomberg News

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

December 12, 2011

(Adds Haitong Securities offering in third paragraph)

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 each, 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 Haitong Securities Co. failed to set a price for its offering today, according to two people with knowledge of the matter.

“The poor reception of 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. Haitong Securities, which is already listed in Shanghai, was expected to raise as much as $1.7 billion from the Hong Kong offering, according to its prospectus.

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 seek to tap China’s growing affluence. Prada in June raised $2.5 billion, including overallotment, and its shares have dropped 9.2 percent from the offer price.

Tiffany Valuation

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 ended March 31, 46 percent more than Tiffany’s full-year revenue.

“The price looks reasonable only if Chow Tai Fook is able to deliver its forecast growth,” said Edwin Fan, a Hong Kong- based analyst at Bank of China. “Pricing at the low end of the range may give it some upside room on the first trading day.” The jeweler forecasts net income of more than HK$6.3 billion in the year ending March 31, according to its prospectus.

The jeweler will start trading amid worries that slower economic growth in China could hurt consumer company sales.

Chow Tai Fook’s smaller competitor Luk Fook Holdings International Ltd. said same-store sales growth may slow in the year ended March 2013. Luk Fook’s Chief Financial Officer Paul Law in a phone interview today projected same-store sales growth between 15 percent and 20 percent in the 2013 fiscal year, slower than his forecast growth of more than 30 percent for the year ended March 2012.

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.

Hong Kong’s Hang Seng Index slid 2.7 percent today and 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, according to two people with knowledge of the matter. Citic Securities Co., raised $1.8 billion in September after selling shares at the low end of its pricing range.

Chow Tai Fook has 12.6 percent of mainland 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.

--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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