* Chow Tai Fook expected to price IPO on Dec. 8
* Listing scheduled for Dec. 15
* Seeking to value shares at 25 times 2013 earnings
By Farah Master and Donny Kwok
HONG KONG, Nov 14 The world's biggest
jeweller began pre-marketing a planned $3 billion Hong Kong IPO
on Monday, as some analysts warned that even with increasing
demand for luxury goods among wealthy Chinese, the company's
anticipated valuation may not be as dazzling for investors.
Chow Tai Fook Jewellery Group, controlled by Hong Kong
billionaire tycoon Cheng Yu-tung, is strongly placed to tap
cash-rich Chinese mainlanders' insatiable hunger for golden
trinkets and all that glitters.
The jewellery retailer's IPO is expected to be one of the
largest this year, as the company pushes ahead with its offering
in the face of economic uncertainty and an equity offering
market that has virtually shut down.
Chow Tai Fook -- which means good luck in Cantonese -- last
week cut the deal's size and valuation because of the global
market turmoil, but moving ahead with the IPO now could be a
signal that listing conditions will only get tougher next year.
Foreign luxury firms are banking on strong Chinese and
emerging market demand to offset weaker sentiment in developed
countries. London-based jeweller Graff Diamonds plans to raise
$1 billion in a Hong Kong listing next year to help fund further
Italian fashion house Prada listed in Hong Kong
earlier this year, and U.S. luxury goods maker Coach Inc
is expected to go ahead with its plans for a secondary listing
by the year-end.
Prada, which raised about $2.5 billion in its IPO, is to
spend some of those proceeds buying into the initial public
offering of local handbag maker Sitoy Group, IFR reported on
Monday, citing sources with knowledge of the deal.
Chow Tai Fook, more than double the size of Tiffany & Co
by revenue, plans to offer 1.05 billion shares, 76.2
percent of which are primary shares and 23.8 percent secondary
shares, according to a term-sheet.
Book-building is due to start on Nov. 28, with pricing
scheduled for Dec. 8 and listing on Dec. 15.
The jeweller has 1,500 stores in Asia and is one of the best
known brands in the region, though it has little recognition in
the West. Advertisements for the stores are routinely plastered
across buses and subway stations in Hong Kong, where the company
has its headquarters.
The 80-year-old company initially planned to sell shares
valued at around 30 times its forecast earnings for fiscal 2013,
which starts in April. But the market turbulence prompted it to
seek a valuation of about 25 times and to sell 10 percent of its
enlarged capital, down from the usual 20-25 percent in Hong Kong
IPOs, IFR reported last week.
Edwin Fan, analyst at BOCI, said Chow Tai Fook's lowered
valuation expectation was still high compared with local rivals
Luk Fook Holdings (International) Ltd and Chow Sang
Sang Holdings International Ltd, which are valued at
"I'd say all three are enjoying the rally in the booming
industry, so not one has a hugely significant advantage. You may
even see the relatively smaller ones demonstrating growth which
is a little bit stronger than Chow Tai Fook," said Fan.
Chow Tai Fook is among just a handful of companies to test
investor appetite after market volatility virtually brought Hong
Kong's IPO market to a grinding halt. The current fourth quarter
is traditionally the busiest period for capital raisings.
Foreign luxury brands not traditionally focused on
jewellery, such as Louis Vuitton and Chanel, are
starting to see the market as a means to grab a slice of China's
appetite for luxury.
Chow Tai Fook, with annual growth of 60 percent, is a common
sight on major streets in Hong Kong and China, with up to 6
branches in the same tiny district in Hong Kong.
At one Chow Tai Fook branch in Hong Kong's Causeway Bay
district, more than two dozen customers eye the gold, diamond
and jade on display -- all from the mainland.
"Around 90 percent of our customers are from the mainland.
They are most keen to buy gold bars and gold wedding bangles,"
said salesman Eric Yu.
While foreign brands Tiffany and Cartier are popular for
white gold jewellery, Chinese customers prefer to buy yellow
gold due to its strong history in China and investment value.
"They want it for investment, not to wear," Yu said.
CLSA Asia Pacific Markets estimates Greater Chinese demand
is expected to account for 44 percent of the global luxury goods
market by 2020.
Analysts say Chinese consumers spend an average of 10-12
percent of total household income on luxury items, underlining
the high propensity to splurge on high-end goods.
Chow Tai Fook Chairman Cheng Yu-Tung, one of Hong Kong's
best known property and retail magnates, also owns New World
Development, a multi-billion dollar real estate,
retail and transport conglomerate.
Among other offers, New China Life Insurance Co Ltd, the
nation's third-biggest insurer, plans to raise about $2.5
billion through a Hong Kong and Shanghai IPO to replenish
Deutsche Bank, Goldman Sachs, HSBC
and JP Morgan are handling the Chow
Tai Fook offer, sources previously told Reuters.