Springland pulls off Hong Kong's largest department store IPO

The company, which also operates a number of supermarkets, raised $477 million and priced its shares at a P/E of 23 times, making it the second most expensive new stock in Hong Kong year-to-date.

Springland International Holdings, a department store and supermarket operator in China, has raised  HK$3.7 billion ($477 million) from an initial public offering in Hong Kong. The deal is the largest new share sale in terms of dollar value by a department store operator, sources said.

The company, which is based in the Jiansu province in eastern China, sold 625 million shares at HK$5.93 each, the top end of the an indicated price range that started at HK$4.85. The international tranche was more than 16 times covered and the Hong Kong public offering attracted orders for more than 80 times the shares initially earmarked for retail investors, which triggered a clawback that increased the size of the retail tranche from 10% to 40%.

Based on Springland's projected earnings for 2011, the IPO price translated into a price-to-earnings ratio of 23 times, making it the second most expensive new stock in Hong Kong year-to-date. The only other company to command a richer valuation is L'Occitane, a French skincare product maker, which priced its shares at 23.7 times 2011 forecast earnings, a source said.

The valuation also pitched Springland at a premium to other publicly traded Chinese department stores, which are trading at an average of 22.5 times next year's earnings.

There were more than 250 institutional investors participating in the deal, including global long-only funds, hedge funds, Asia- and emerging market-focused funds. About 60% of the demand came from Asia-based accounts, 20% from the US, and around 15% from Europe, the source estimated.

The deal offers further evidence that retail consumption stocks are regarded as popular picks by cash-rich global investors who are interested in China's fast growth. In the past month, a tide of mainland China-based companies have been testing investor appetite with new share sales in both Hong Kong and the US. And private consumption-focused stocks, such as Boshiwa International, a children's clothing maker, have been especially hot as the market expects Chinese policymakers to turn the export-led economy into a consumption-driven one in the country's 12th five-year plan.

Boshiwa's share price rose 41% in its trading debut in Hong Kong after its retail tranche ended 485 times subscribed. Country Style Cooking, a Chinese restaurant chain which specialises in quick meals for less than $3, soared 47% on its first trading day in the US.

Springland's IPO accounted for 25% of the company's enlarged share capital. The deal also comes with a 15% overallotment option to sell an additional 93.75 miillion shares, which would allow the company to raise as much as $549 million.

Springland operates 10 department stores and 16 supermarkets in and near the Yangtze River Delta in Jiangsu, and also has three department stores and 10 supermarkets under construction, which are expected to start operation between the end of this year and the second half of 2012. The majority of its department stores are located close to its supermarkets in the same area. The company made a net profit of Rmb 247.7 million ($37 million) profit in 2009, according to its IPO prospectus.

It will use 60% of the net proceeds for branch expansion, including 30% to open the three department stores and 10 supermarkets currently under construction. Another 25% will be applied to repay bank loans, while 5% will be used to expand its management and logistics systems. The balance 10% will be used as general working capital, the company said.

The shares will start trading on Thursday. DBS and Morgan Stanley managed the deal.

¬ Haymarket Media Limited. All rights reserved.

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