L'Occitane International, the cosmetics and skincare producer and retailer, has raised $708 million from the first Hong Kong initial public offering by a French company after pricing its shares at the top of the indicated range.
The institutional offering was "very significantly oversubscribed" by investors from both Asia and the West, while the retail tranche was about 159 times covered, sources said. The latter led to a clawback that increased the size of the retail tranche to 50% of the deal from the initial 10%.
The popularity of the deal gives some relief to the market, which has been weary of new listings since the beginning of the year. It also offers further evidence that the Hong Kong exchange's efforts to attract companies from outside of Greater China is starting to pay off.
Executives of the Hong Kong exchange have been touring the globe in recent years to attract a more geographically diverse range of listing candidates -- a job made easier by the recent debt crisis in Europe and the slower recovery in the US, which are diverting capital towards Asia. A European brand that is sought after in Asia, L'Occitane is also benefitting from this trend.
The company sold 364 million shares, or 25% of its enlarged share capital, at HK$15.08 apiece, which equals the top end of a range that started at HK$12.88. Half of the shares were new, while the remainder were sold by parent L'Occitane Groupe, which plans to use the proceeds to repay debt.
The final price translates into a price-to-earnings ratio of 21.9 times based on the projected earnings for the fiscal year to March 2011. That is well below Japanese peers, Shiseido and Fancl, which, according to sources, trade at 2010 price-to-earnings multiples of about 30, However, it appears expensive compared with fellow French brand L'Oreal, which is quoted at 21.2 times this year's earnings.
The best Hong Kong-listed stock to compare L'Occitane to is Bawang International, bankers involved with the deal said. The shampoo maker and retailer raised $215 million in one of the most popular IPOs in Hong Kong last year. Bawang is currently trading at a 2010 P/E ratio of 42 times.
L'Occitane will use approximately 90% of the net proceeds from the share sale to finance its global expansion, particularly in high-growth emerging markets, it said in the IPO prospectus. It plans to open 650 new stores over the next five years.
"Our strategy is to continue to increase the number of our retail stores internationally, and in particular in countries where we believe there is likely to be a growth in demand for our L'Occitane and Melvita products," it said. "These may include high-growth emerging markets such as China, Brazil, Russia, India and Mexico."
The company estimates it made a net profit of €73.8 million ($98.27 million) in the fiscal year to March 2010, which would represent a 26% increase from the previous year.
Investor education of the deal was said to have been fairly easy because the L'Occitane brand is a well-known name among China's growing middle class consumers -- a notable achievement considering it only opened its first shop in the country in 2005. Hong Kong consumers are also consumed with French-concept products. A survey conducted by the Hong Kong government's family affairs department shows that France is the most preferred honeymoon destination for wedded couples in the city.
Retail investor confidence in the company was also supported by a cornerstone investment by China's $200 billion wealth fund, China Investment Corp. CIC agreed to purchase $50 million worth of shares with a six-month lockup.
L'Occitane, which markets cosmetics and skincare products made from natural and organic ingredients, was founded by Oliver Baussan in 1976. Its products include almond and olive-based creams and lavender gels manufactured in Manosque, a small town in Provence. The products are sold in more than 80 countries through 1,500 outlets, of which it owns 753. Last year, L'Occitane generated 36% of its revenue from key markets in Asia, including Japan, Hong Kong and Taiwan.
L'Occitane's trading debut is scheduled for May 7. The IPO was arranged by CLSA, HSBC and UBS.
Photo by AFP.