Prada's IPO Gateway to China

Fashion house Prada SpA is looking to raise HK$15.5 billion and HK$26.3 billion ($2 billion to $2.6 billion) in an initial public offering in Hong Kong. It is offering 423.3 million shares, or 16.5% of its enlarged share capital, at a price between HK$36.50 and HK$48 per share. The company had failed to get its shares listed four times over the last decade, but is capitalizing on Hong Kong's fascination with international luxury brands and being the first such fashion brand to go public there.

According to Finance Asia, because of an automatic clawback mechanism that increases the size of the retail tranche when there is strong demand from retail investors, the number of shares available for institutional investors actually gets reduced on popular deals. This can result in a scarcity effect and force up valuations as investors scramble to get a piece of the deal. To limit this effect, Prada has sought and received a waiver to cap the size of the retail tranche at 25%, as opposed to the usual 50%. The retail tranche will start out at 10%, but will be increased to 25% if it is more than 100 times covered. Investors may also have to pay Italian capital gains tax if they make a profit when selling the shares.

Prada plans to open 80 self-operated stores this year to existing 319 stores, with 25 of the new stores in the Asia-Pacific region. It also aims to expand into the Middle East, Brazil, and Russia. Prada also sells through 1,400 wholesalers and 33 franchise stores across 70 countries.

In the latest fiscal year, the company derived 32% of its revenues from Asia-Pacific, compared to 41.8% from Italy and the rest of Europe combined. However, Asia-Pacific sales grew at a compound annual growth rate of 51% in the past two years, compared to less than 2% in Europe and 1% in Italy. The shift towards Asian consumers also helped the company to stay profitable throughout the latest financial crisis.