Chow Tai Fook seeks up to $2.83 billion in HK IPO: sources

HONG KONG Fri Nov 25, 2011 9:38am EST

Hong Kong tycoon Cheng Yu-tung attends a news conference in Hong Kong September 20, 2011. REUTERS/Bobby Yip

Hong Kong tycoon Cheng Yu-tung attends a news conference in Hong Kong September 20, 2011.

Credit: Reuters/Bobby Yip

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HONG KONG (Reuters) - Chow Tai Fook Jewellery Group Ltd could raise up to $2.83 billion, which would be the biggest Hong Kong initial public offering of the year, tapping volatile equity markets to fund the purchase of diamonds and gold and pay down debt.

The Hong Kong-based company will offer 1.05 billion shares at HK$15 to HK$21 each, putting the total deal size at up to HK$22.05 billion ($2.83 billion), two sources with direct knowledge of the deal told Reuters on Friday. The sources could not be named because details of the deal are not yet public.

The IPO, one of the most anticipated of the year because of its size and the wide brand recognition of Chow Tai Fook in Greater China, would value the company at about $27 billion, nearly three times the size of U.S. jeweller Tiffany & Co. (TIF.N).

"They're a very established brand and they've been around forever, so there's a reason for them to want to be listed," said Selina Sia, head of consumer research at Mirae Asset in Hong Kong.

"It really depends on the pricing, the market is not doing well."

The 83-year-old jewelry retailer is among several companies pushing ahead with offerings, despite the uncertainty over Europe's debt troubles that has caused a roller coaster ride in markets the past several weeks.

Other major deals lined up in the region include insurer New China Life's $2.5 billion dual listing in Shanghai and Hong Kong and brokerage Haitong Securities' up to $2 billion offering.

ANCHOR INVESTORS

Chow Tai Fook's IPO will have no commitments from so-called cornerstone investors, one of the sources said, a sign that investors are unwilling to tie up their funds for an extended amount of time.

Such investors back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period during which they will not sell their shares.

The IPO will instead count on a large list of "anchor" investors that have less restrictions on when they can sell the stock, the source added.

The deal would surpass the $2.5 billion IPO by Milan-based Prada SpA (1913.HK) in Hong Kong in June. Commodities giant Glencore (GLEN.L) (0805.HK) raised nearly $10 billion in a Hong Kong and London dual listing in May, with most of the funds raised in the London portion of the offering.

Chow Tai Fook, controlled by billionaire tycoon and New World Development Co Ltd (0017.HK) Chairman Cheng Yu-tung, will start a roadshow for the offering on Monday, with pricing slated for December 8, according to terms of the deal previously seen by Reuters.

The stock will trade under the symbol "1929," the year the company was founded.

Jewelry retailers and luxury goods companies in China have benefited from the massive economic shift in the country, with urbanisation, wage growth and the rise of women in the labor force all stoking demand for diamonds, leather bags, designer clothes and sports cars.

Chow Tai Fook has about 1,500 stores, most of them in Greater China. The company also has shops in Singapore, Taiwan and Malaysia.

In Hong Kong and gambling center Macau alone, the company has about 80 stores and is a household brand, with a massive marketing campaign that has more than 1,000 double-decker busses brandishing the bordeaux-coloured ads around the former British colony.

Growth has boomed in recent years and the company plans a large-scale expansion, targeting to grow to 2,000 stores by 2016. The company went from opening its first outlet in Beijing in 1998 to more than 1,400 stores in 260 Chinese cities in 12 years.

Chow Tai Fook plans to use 50 percent of the IPO funds to build its inventory and secure supplies of gems and precious metals.

About 31 percent of the proceeds will be set aside to pay down loans and a combined 8.6 percent allotted to property for new stores and research and development.

Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N), HSBC (0005.HK) (HSBA.L) and JP Morgan (JPM.N) are handling the offer, with Citigroup (C.N), Credit Suisse (CSGN.VX) and UBS (UBSN.VX) also acting joint bookrunners.

($1 = 7.797 Hong Kong dollars)

(Additional reporting by Fiona Lau; Editing by Jonathan Hopfner, Alex Richardson and Vinu Pilakkott)

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