Anta Sports scores full points with IPO

The sportswear manufacturer raises $406 million and rounds off a six-month period in which Hong Kong and Chinese issuers have raised $37.6 billion worth of equity.

Chinese sportswear manufacturer Anta Sports Products has priced its initial public offering at the top end for a total deal size of HK$3.17 billion ($406 million) after attracting strong demand from both institutional and retail investors.

Along with the China consumption story, which is highly popular with investors, Anta also has the added attraction of the upcoming 2008 Beijing Olympics, which is expected to lead to a pickup in spending on sportswear and give the leading players in the sector a measurable growth boost. The fact that the owner of the Houston Rockets basketball team – in which China’s own Yao Ming is one of the key players - bought into the deal as a corporate investor was also seen as a draw even though his actual investment was quite small.

Family-owned Anta makes shoes and clothing for a wide range of sports and for both professionals and the public, but is particularly associated with basketball through its sponsorship of the Chinese Basketball Association league. Yao Ming's success in the US NBA league has also brought something of a basketball craze to China which is reflected not only in the growing number of youngsters actually playing the game, but in people's shopping baskets as well.

The deal was among four Hong Kong IPOs that priced on Friday and Saturday last week, raising a combined $1.12 billion. The quartet brought the funds raised from equity offerings by Hong Kong and Chinese issuers (excluding A-shares) in the first six months of 2007 to $37.6 billion with 48% coming from IPOs, according to Dealogic data.

Morgan Stanley, which ended the first half on top of the overall ECM league table for China/Hong Kong ahead of UBS and Goldman Sachs, was the sole bookrunner for Anta’s offering. The sportswear manufacturer and retailer also helped the US investment bank to squeeze ahead of UBS in the China/Hong Kong IPO tables in the past week, leaving it with $4.2 billion worth of IPO league table credits and 10 deals, compared with the $3.5 billion from 11 deals for its Swiss rival. HSBC rounds off the top three with $1.2 billion.

Investors have continued to embrace the primary issuance out of China even as the Hong Kong market has become a bit jittery after hitting a series of record highs and according to sources the Anta offering attracted more than 450 institutional accounts. The institutional tranche was about 150 times covered post clawback.

The full clawback was triggered after retail investors ordered more than 170 times the number of shares earmarked from them, and resulted in the retail tranche being increased to 50% from 10%. The institutional portion was reduced by a corresponding amount.

Houston Rockets’ owner Leslie Lee Alexander bought about $30 million worth of shares in the offering, or about 7.4% of the deal pre-greenshoe. In return for the guaranteed allocation, Alexander has agreed not to sell any shares over the next 12 months without prior consent from the company and from Morgan Stanley in its role as global coordinator.

The institutional order book was said to have contained virtually no price sensitivity and the price was fixed at the top of the indicated range of HK$4.28 to HK$5.28. The offer comprised 600 million new shares, or 25% of the company, plus a 15% greenshoe that may boost the total deal size to $467 million.

The IPO price translates into a 2008 price to earnings multiple of 19.7, which some investors said was relatively cheap compared with fellow sportswear retailer Li Ning. Both companies have an equally well-known brand name, but the latter has a greater market share and also owns it own stores, while Anta sell its products to its distributors who then sells them on to the consumers through authorized and exclusive Anta retailers.

Li Ning currently trades at a 2008 P/E ratio of about 33 times. The Hong Kong-listed company, which is controlled by a former World Champion gymnast by the same name, had a 9.6% share of the Mainland sportswear market in 2005 compared with 3.2% for Anta, according to Shanghai-based sports marketing and consulting firm ZOU Marketing. Nike was the market leader with 13.1% followed by 12.3% from Adidas.

These top four brands are expected to see continued strong growth over the next few years at the expense of less established, lower-end brands, reaching a combined market share of 75% by 2010 from about 40% in 2005.

Data compiled by ZOU Marketing show that China’s sportswear market has seen double-digit growth since 2000 and the firm projects that it will almost double in size to Rmb46 billion ($6 billion) by 2008 from Rmb25 billion in 2005.

Anta last year derived about 64% of its sales revenues from sports shoes with the remainder coming from apparel and accessories. As of the end of 2006 its production facilities in Fujian province produced 8.9 million pairs of shoes for basketball, running, tennis, football, cross training and extreme sports among others. The production capacity has increased from 4.5 million shoes in 2004 and will be increasing significantly again this year following the addition of another five production lines in the first quarter of 2007, bringing the total number of lines to 15.

Part of the net proceeds from the offering will be used to set up another 12 production lines, but a large portion will go towards advertising and marketing and brand building campaigns as well as to improve the coverage of its distribution network.

The company’s distributors, which are granted exclusive rights in a particular geographical region, have increased in numbers as the business has grown from 12 in 2004 to 37 at the end of March this year. They currently operate a combined 4,217 Anta retail outlets.

As part of its expansion strategy, Anta is planning to set up flagship stores for its branded products in major Chinese cities with the primary aim of enhancing its brand profile. Three or four such stores will open this year.

In addition to its Anta branded products, the company has entered into agreements with two Chinese units of Adidas to sell sporting goods under the Adidas and Reebok names. It also has the rights to sell Kappa branded sportswear in Shanghai. As of the end of April, Anta managed 13 outlets selling Adidas products, 15 selling Reebok products and 12 selling products under the Kappa name.

The shares are set to start trading on July 10.

Among the other three Hong Kong IPOs that priced on Friday or over the long weekend were shoe manufacturer Stella International, which raised $387 million, and Taiwan-based Delta Networks, which sold $180 million worth of shares – both with Goldman Sachs as the sole bookrunner. Meanwhile, tissue paper manufacturer Vinda raised $142 million from a primary share issue with the help of Merrill Lynch.

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