Chinese IPO

Hongguo sets offer price for $208 million IPO

Chinese shoemaker and retailer Hongguo offers its IPO shares at a discount to domestic competitors as it aims to raise up to $208 million in Hong Kong.
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The latest designs from one of Hongguo's own brands, E-Blan
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<div style="text-align: left;"> The latest designs from one of Hongguo's own brands, E-Blan </div>

Hongguo International Holdings, a Chinese shoemaker and retailer, started taking orders on Friday for a Hong Kong IPO that could allow the company to raise HK$1.62 billion ($208 million).

Primary markets have picked up since early this month and several other issuers are also vying for investors’ attention. One of the biggest, Citic Securities, is planning to list on Hong Kong’s stock exchange and will start taking orders from institutional investors later this week. It is estimated to be raising up to $3 billion. Two Chinese machinery makers, Sany Heavy Industry and XCMG Construction Machinery, are also in the market, aiming to raise $3 billion and $2 billion respectively.

Hongguo plans to sell 500 million shares, 60% of which will be newly issued, at a price range between HK$2.30 and HK$3.24, which suggests the company could raise HK$1.15 billion to HK$1.62 billion, according to sources.

Based on Hongguo’s 2012 forecast earnings, the offering price values the company at 10 to 14.1 times its earnings. By contrast, Hongguo’s domestic competitors, Belle International and Daphne International, which are both listed in Hong Kong, are currently trading at 30 times and 22.9 times earnings, respectively.

Shares in Belle have gained 24% so far this year and 162% since the company’s $1.1 billion IPO in 2007. To take advantage of the gain, management at the footwear retailer raised $471 million from a share sale last week.

Some 90% of Hongguo’s offering is earmarked for institutional investors, while the remainder will be sold through the Hong Kong public offering.

Hongguo’s IPO comes with a standard 15% greenshoe option that, if fully exercised, will allow the company to raise as much as HK$1.86 billion by offering an additional 75 million secondary shares.

Hongguo, based in Nanjing in east China, is primarily engaged in the design, manufacture and sale of mid-to-premium women’s shoes.

Women’s footwear accounted for approximately 51.8% of the entire footwear market in China, while women’s mid-to-premium footwear accounted for 27.8% of the entire women’s footwear market in the country, Hongguo said in an IPO prospectus.

The company has a distribution and retail network that consisted of 1,015 outlets and 344 third-party outlets in 31 provinces and areas as at the end of March this year.

Although it makes and sells footwear for international brands such as Nine West and Guess, the majority of its revenue comes from the retail sales of its own brand, namely C.banner and E-Blan, which contributed more than 76% of Hongguo’s income last year.

The company said in a statement that it could miss its earnings target if it failed to anticipate or respond to changes in fashion trends and customer tastes and preferences, noting that the women’s footwear industry is highly susceptible to such changes.

Hongguo delisted from Singapore in May 2010. At the time, the company said privatisation would provide greater flexibility.

Citi and DBS Bank are managing Hongguo’s Hong Kong IPO.

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