Sept. 20 (Bloomberg) -- Prada SpA is seeking advisers for an initial public offering that may value the maker of Church's shoes and Miu Miu bags at 4 billion euros ($5.6 billion), six bankers with knowledge of the discussions said.

The Milan-based fashion house, which scrapped three previous IPO attempts this decade, may sell shares in the first half of 2008 to cut debt and finance expansion, the bankers said, declining to be identified because the plans aren't final.

``Prada has cleaned up its balance sheet and is doing very well,'' said Armando Branchini, vice president of Intercorporate SpA in Milan, a consulting company that specializes in the luxury market. ``Prospects are also good for the industry.''

The IPO would be the biggest in the luxury goods industry. Prada, whose dresses are worn by French first lady Cecilia Sarkozy, is focusing on its namesake line, Miu Miu and Church's, after selling the unprofitable Jil Sander and Helmut Lang labels last year. Demand for luxury goods is expected to grow at least 9 percent over the next two years, driven by wealthy Russian and Chinese consumers, Branchini said.

The fashion company, known for black nylon bags with triangular metal logos, intends to sell a stake between 30 and 40 percent, the bankers said.

Banks Pitching

The bankers said the fashion company may be worth 3 billion euros to 4 billion euros, including debt of about 1.1 billion euros. Prada said in July the company wasn't for sale and was still considering selling shares starting from next year.

Prada has received pitches from investment banks and is likely to invite Intesa Sanpaolo SpA,Unicredit SpA and an international institution to help manage the IPO, the bankers said. Spokeswomen for both banks declined to comment.

``We will look into the IPO process, but nothing has been decided yet,'' said Prada spokesman Tomaso Galli. ``We are under no pressure to go.''

Prada is run by Chief Executive Officer Patrizio Bertelli and his wife Miuccia Prada, the head designer. The couple and their extended family control the company.

The company's potential value has halved from the time it first mulled an IPO in 2001. Analysts then estimated the company was worth as much as 8 billion euros, before the slump in the luxury industry and world stock markets that followed the Sept. 11, 2001 terrorist attacks.

Plunging Markets

The Italian fashion firm last canceled an IPO plan in June 2002 because of plunging stock markets. ``It's unfortunate that every time Bertelli decides to float the company, the market falls,'' said Carlo Pambianco, a Milan-based luxury industry consultant.

Based on an equity valuation of 2.9 billion euros, or after debt is striped out, Prada would raise as much as 1.2 billion euros if it sold 40 percent of the company. That calculation implies Prada is worth about 50 percent more than it was in November, when Intesa Sanpaolo SpA bought a 5 percent stake for 100 million euros.

Polo Ralph Lauren Co. raised $767 million when it went public in 1997. Burberry Group Plc, the British luxury label raised 260 million pounds ($519 million) in its IPO five years ago. Salvatore Ferragamo SpA, the Italian luxury-goods maker that dressed Audrey Hepburn, has said it may sell stock in an IPO next year.

``There are signs that investors are starting to look at luxury players more and more,'' said John Guy, a retail and luxury analyst for MF Global Securities in London.

The 14-member Bloomberg European Fashion Index has more than doubled since 2002. Bain & Co. estimates the luxury goods market may rise 50 percent a year in China during the next five years, while annual sales in Russia gain 20 percent.

Burberry

Burberry shares are trading at 18 times next year's estimated earnings, according to Bloomberg data. LVMH Moet Hennessy Louis Vuitton SA, the world's biggest luxury-goods company, is worth about 40 billion euros and trades at a price- earnings ratio of about 19.

Pambianco says Prada may be worth 3.5 billion euros including debt, or 15 times earnings before interest, taxes, depreciation and amortization in 2006.

Prada's net income climbed 63 percent last year to 76 million euros, while sales rose to 1.43 billion euros. The Prada brand accounts for about 83 percent of the entire company's revenue.

Bertelli said in April that the company expects to accelerate growth following investments in its store network. Prada currently operates 212 shops and has 24 franchise boutiques, compared with Salvatore Ferragamo's 230 stores and Gucci's 227.

Prada went on an acquisition spree in the late 1990s, buying Jil Sander, Helmut Lang and Azzedine Alaia. That led to four years of losses that ended in 2006.

To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net.

Last Updated: September 20, 2007 10:24 EDT