Swatch Partner Hengdeli to Sell $134 Million of Shares to Fund Expansion
Hengdeli Holdings Ltd., the retail partner of Swatch Group AG in China, plans to raise $134 million in a share sale to fund expansion.
Hengdeli is selling 300 million new shares at HK$3.48 each, 10 percent less than the Aug. 24 closing price in Hong Kong, the company said in a Hong Kong stock exchange filing yesterday. The stock will resume trading today after a one-day halt.
The retailer of Omega and Breguet watches in China has gained 32 percent in market value this year, compared with a 5.7 percent decline in the benchmark Hang Seng Index. Hengdeli is opening 50 stores in mainland China, Hong Kong and Taiwan this year. China and Hong Kong consumed 25 percent of Swiss watch exports in July.
“They’re taking advantage of the opportunity to expand like everyone else because of China’s economic growth,” Selina Sia, Hong Kong-based regional head of consumer research at Mirae Asset Securities Co., said in a phone interview yesterday. “They’ll use the funds to open stores and increase inventory.”
The company said it will use the sale proceeds to expand its network of luxury watch stores, including acquisitions. Hengdeli may buy retailers to expand its network in southwestern China and Jiangxi, Chairman Zhang Yuping said Aug. 11.
Hengdeli will probably build bigger stores in Hong Kong and Macau, where the margins are “a little bit better” than in mainland China, Sia said. While the retailer makes about 30 percent of its sales in Hong Kong, a “significant portion” of that revenue comes from selling to mainland Chinese tourists, she said.
Mainland China excludes Taiwan and the cities of Hong Kong and Macau.
New Stores
The retailer plans to spend as much as 400 million yuan ($59 million) on store openings this year, according to Zhang. Hengdeli also signed on Aug. 16 an agreement with Ming Fung Jewellery Group Ltd. to develop a luxury jewelry retail venture in greater China.
The new stores will bring the total to 320 for Hengdeli, whose sales have surged fivefold in the four years through 2009.
A quarter of all Internet searches for brands last year in China were for Swatch Group’s Omega, according to research firm IC-Agency, publishers of the World Watch Report.
Hengdeli’s first-half profit rose 44 percent to 306 million yuan on sales that rose 38 percent to 3.7 billion yuan.
Swatch Group owns an 8.9 percent stake in Hengdeli, and LVMH Moet Hennessy Louis Vuitton SA holds 6.8 percent, according to data compiled by Bloomberg.
Kingston Securities Ltd. is the placing agent for the sale.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net
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