Handsome subscriptions for Belle IPO

The shoe manufacturer and retailer raises $1.1 billion and attracts more retail money than ICBC.
Belle International Holdings has priced its initial public offering at the top of the range for a total deal size of HK$8.68 billion ($1.1 billion) after attracting a mind-boggling $120 billion worth of orders.

On the retail side, the demand translated into a higher order value than for Industrial and Commercial Bank of ChinaÆs world record-breaking $21.9 billion IPO, making the Mainland shoe manufacturer and retailer the most popular retail offering in Hong Kong ever. ICBCÆs offer attracted more demand in total, however, as institutional investors submitted orders for just under $300 billion.

Investors were believed to have been attracted to the Belle because of its large scale û with a market capitalisation of over $5 billion at the time of listing it will be larger than any other Chinese retail company listed in Hong Kong û and the fact that it has all the attributes of a classic consumption story. Aside from scale, these include vertical integration, well-established brands, dominance in its sector and steady growth prospects as the Mainland economy continues to grow and the middle class gets wealthier.

Still, the fact that ChinaÆs largest manufacturer of womenÆs shoes is able to draw more demand than the countryÆs largest bank whose total offering was 22 times the size (or 16 times the size if you look only at the Hong Kong tranche) is a clear indication of how liquidity-driven the markets are at the moment.

According to sources, retail investors subscribed to more than 500 times the number of shares that had been earmarked for them, which means that at least HK$434 billion ($55.6 million) of cash was tied up in the system during the subscription period. This compares with HK$423 billion for ICBCÆs retail offering.

The strong retail demand resulted in a full clawback which boosted the retail tranche to 50% from 10%. The portion of the deal left for institutional investors after adjusting for this and the $40 million worth of shares that were set aside for two corporate investors, was more than 100 times covered with close to 700 names in the order book, the sources say.

Belle fixed the price at HK$6.20, which values it at 32 times its 2007 earnings, based on consensus forecasts. Belle had been marketing its shares in a range between HK$5.35 and HK$6.20. The final valuation is well above the smaller shoe manufacturers listed in Hong Kong and Singapore at 20 to 26 times, but below other branded retail names in China, such as Li Ning, or leading department store operator Parkson Retail Group, which both command 2007 P/E multiples in the 40s.

One if the key companies being watched during the roadshow, was Prime Success even though the two have fundamentally different business strategies. One most important difference, market watchers say, is the fact that Belle generates less than 4% of its revenues from original equipment manufacturing (OEM), i.e. the production of shoes for other brands, while Prime Success earns a quarter of its income from this type of manufacturing.

It sold 1.4 billion shares, of which the majority, or 83%, was primary paper sold by the company. The remaining 17% consisted of secondary shares sold by the chairman and the companyÆs two financial investors.

One of the financial investors is a private equity unit of Morgan Stanley and the other one is the China-focused CDH Investments. The two funds will see their combined holdings fall to about 8% of the company (split equally between them) from 11.5% as a result of the IPO. Although they will be locked up for six months, the shares owned by the pair will count towards BelleÆs free-float, allowing the company to limit the total share sale to 17% of the issued share capital.

Meanwhile, the company sold $30 million worth of shares to a unit of LVMH Group, which owns the Louis Vuitton brand, and another $10 million worth to an affiliate of CDH. Both these investors will have a six-month lock-up on their shares.

The deal has a 15% greenshoe that could boost total proceeds to HK$10 billion ($1.3 billion).

Belle makes about 15 million pairs of shoes per year, but almost all of these are sold through its own 3,828 retail outlets (many of which are in department stores) in 150 cities across China. This vertically integrated model, which also incorporates design and marketing, gives the company good control over its supply chain and also enables it to pass on higher production or raw material costs to the end consumer.

Another thing that makes Belle stand out from its shoemaking peers is its acquisition in the middle of last year of a sportswear business that gave it the right to sell sportswear for Nike and Adidas in China. It is now the largest sportswear retailer in China for these two brands and it is also an authorized retailer for other brands like Li Ming, Reebok, Puma, Mizuno, Kappa and LeviÆs.

Credit Suisse and Morgan Stanley acted as joint book runners for the IPO. China International Capital Corp. and DBS Asia Capital were acting as co-leads.

The shares are due to start trading on Hong KongÆs main board on May 23.

In the meantime, it will be interesting to see whether this kind of interest will transfer to shoe retailer Walker, which has just started pre-marketing for a Hong Kong IPO of its own with the help of DBS Asia Capital and Tai Fook Securities. If it does, it is bound to cause some headaches within the syndicate since Walker is looking to raise only HK$500 million ($64 million).
¬ Haymarket Media Limited. All rights reserved.
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