Chinese sportswear company Peak Sport Products has raised HK$1.7 billion ($222 million) ahead of its listing on September 29. It is the second sportswear company to list in Hong Kong this year.
The deal priced at HK$4.10, just above the mid-point of an indicative range that went from HK$3.55 to HK$4.55 a share. The offering of 419.5 million new shares represents 20% of the company. If the 15% greenshoe is fully exercised, another 62 million shares could be included in the deal, bringing the maximum possible deal size to $255 million.
The book was said to be covered several times. There was strong interest from the US, with the usual showing of long-only and hedge funds from Asia and Europe. The Hong Kong public offering was more than 20 times covered, triggering a clawback that gave retail investors 30% of the total offering.
This is the second Chinese apparel company to complete an IPO in recent days. Last week, China Lilang fixed the price of its $151 million deal near the top of the range. Although the company's focus is different from Peak Sport's -- it makes business suits and other menswear -- both companies firmly target the mass market.
Peak Sport's IPO price represents a valuation of just under 10 times projected earnings for 2010, which puts it on a par with the other sportswear companies that have listed in the last 18 months. Xtep International, for example, is currently trading at about 10.7 times.
The company will not want to end up like 361 Degrees International, another Chinese sportswear company, which raised $231 million in June. Last night it closed at HK$3.37, 6.6% below its IPO price, which works out at about 8.2 times projected earnings for 2010.
With so many sportswear companies listed in Hong Kong, differentiation is very important. Peak Sport's selling point is its association with basketball. It sponsors the National Basketball Association (NBA) and seven individual players, such as Sonny Weems, Darnell Jackson and Ron Artest.
The company will use half the capital raised for advertising and brand promotion. The remainder of the money will be used to expand its production facilities and to expand the sales network.
Credit Suisse was the sole bookrunner on the deal.
There are some concerns among investors that the current high levels of equity issuance could have a negative effect on the markets. But, according to a recent report by Citi, these worries are unwarranted. "There is only a very weak relationship in [Asia ex-Japan] between market returns and equity issuance," said the report. And despite the perception in the market, the amount of deals is not that high: year-to-date issuance as a percentage of market capitalisation is the lowest for 17 years.