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Chow Tai Fook Seeks $2.8 Billion in Hong Kong Initial Offering, Terms Say

Chow Tai Fook Jewellery Group Ltd. may raise as much as HK$22 billion ($2.8 billion) in what could be Hong Kong’s biggest initial public offering this year as luxury-goods companies tap growing affluence in China.

The jewelry chain, whose revenue is higher than rival Tiffany & Co. (TIF)’s, is offering 1.05 billion new shares at HK$15 to HK$21 each, according to a term sheet sent to investors. Chow Tai Fook plans to start trading Dec. 15, according to the terms.

The offering by the Hong Kong-based jeweler with more than 1,400 outlets in China will test investors’ appetite after Prada SpA, which raised $2.5 billion in Hong Kong’s biggest IPO this year, has declined since its June debut. Sales of luxury items in China will more than double to about 180 billion yuan ($28 billion) in 2015 from last year, McKinsey & Co. estimates.

“At such a pricing range, it is more expensive than its peers, but Chow Tai Fook is much bigger,” said Patrick Yiu, managing director at Cash Asset Management. “The price range still looks reasonable.”

Chow Tai Fook, controlled by real-estate billionaire Cheng Yu-tung, forecasts net income of more than HK$6.3 billion in the year ending March 31, 2012, according to a statement from the company to Hong Kong’s stock exchange today. Earnings per share on a pro forma basis will be at least 63 Hong Kong cents, it said.

Fortune, Prosperity

Founded in 1929 in the southern Chinese city of Guangzhou, the company was named after founder Chow Chi Yuen and “Tai Fook” means fortune, prosperity and luck in Chinese.

Retail sales in China have grown an average of 17 percent in the first ten months of this year, according to data compiled by Bloomberg. In Hong Kong, Chinese visitors splurging on high- end shoes, watches and jewelry have driven monthly retail sales to record highs.

Graff Diamonds Ltd., the jewelry retailer whose founder twice set records buying gems at auction, is preparing to raise $1 billion in a Hong Kong IPO next year, according to a person familiar with the matter.

Baoxin Auto Group Ltd., a dealer of BMW and Jaguar cars in China, seeks as much as $526 million in a Hong Kong share sale, according to a term sheet. The company, based in Shanghai, plans to start trading on Dec. 14, according to the terms.

Use of Proceeds

The Chow Tai Fook shares being offered will account for 10.5 percent of the company after the sale, according to the term sheet. The company’s stockholders have the option to sell 210 million shares under an upsize option, as well as the equivalent of 15 percent of the final deal size under an overallotment option, according to the document.

Half of the funds raised by the company will be used on raw materials and inventory, with 36.5 percent for repayment of loans and 5 percent on buying properties and renovating stores, according to the term sheet. The remainder will be used to buy production as well as research and development equipment, to build an office building in Shenzhen, and on working capital.

The IPO will be the biggest in Hong Kong this year, exceeding Prada’s if priced at the top of the range.

Companies have raised more than $15 billion from initial public offerings so far this year, compared with $46.3 billion for the same period last year, data compiled by Bloomberg show.

Prada rose 6.3 percent, the most since Oct. 27, to HK$34.40 at the close of trading in Hong Kong. The stock has dropped 13 percent from the offer price since it started trading in June.

Annual Sales

Chow Tai Fook posted revenue of HK$35 billion in the 12 months ended March, it said in a filing. Tiffany had annual sales of $3.09 billion.

The Hong Kong-based jeweler has 12.6 percent of China’s jewelry market, with a 20 percent share in Hong Kong and Macau, the company said in its filing, citing a Frost and Sullivan report. It sources rough diamonds from companies such as Rio Tinto and Diamond Trading Co., the distribution arm of De Beers.

Retail sales in China are predicted to more than double to 40.5 trillion yuan ($6.36 trillion) in 2015, up from 15.4 trillion yuan in 2010, according to a KPMG report released in April.

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. are managing the IPO for Chow Tai Fook as global coordinators.

To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Stephanie Wong at swong139@bloomberg.net

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