World’s biggest jeweler to launch $3 billion Hong Kong IPO

Chow Tai Fook Jewellery Group, the world's biggest jeweler, has began to pre-market 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 Co., the jewelry retailer controlled by Hong Kong tycoon Cheng Yu-tung, began testing investor response in Hong Kong and the U.S. in a premarketing process Monday for an up to $3.5 billion initial public offering, potentially the world's biggest IPO since Spain's Bankia SA listed in July.
 
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. Deutsche Bank, Goldman Sachs, HSBC and JP Morgan are handling the Chow Tai Fook offer, sources have told Reuters. The Wall Street Journal reported Citigroup Inc, Credit Suisse and UBS have been added to the lineup as bookrunners.

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.
 
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.
 
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 15 times. "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 to Reuters.
 
But Chow Tai Fook would not but just break the ice for other luxury peers as foreign luxury labels are banking on strong Chinese and emerging market demand to offset weaker sentiment in developed countries. In this vein, London-based jeweller Graff Diamonds plans to raise $1 billion in a Hong Kong listing next year to help fund further Asian expansion.
 
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. Chow Tai Fook, with annual growth of 60 percent, recognizes that  "Around 90 percent of our customers are from the mainland. They are most keen to buy gold bars and gold wedding bangles." Following trade publications, 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," they said.
 
AngelaGonzález-Rodríguez