Dealtalk: Doubts devil Prada IPO plan

By Antonella Ciancio and Kylie MacLellan

MILAN/LONDON (BestGrowthStock) – Catwalk favorite Prada’s hopes of being the first European fashion house to strut its stuff on the Hong Kong stock market could be delayed by pressure to split the listing with hometown Milan.

The Italian maker of cutting-edge bags with a triangle logo has shelved a flotation three times over the last decade. But expectations for an initial public offering have mounted after Prada said in October it may list next year, possibly in Hong Kong, if markets recover.

Analysts estimate Prada could aim to raise 1.2 billion euros ($1.58 billion) from the sale of a third of its shares in Hong Kong, the first ever Italian listing on the Asian bourse, at a multiple of 10 times its projected 2010 core earnings.

“The issue is what the primary market would be,” said Simone Ragazzi, an analyst at Italy’s Centrobanca.

“Milan could be a necessary condition because of Prada’s debt exposure with local banks,” Ragazzi said.

Prada’s indebtedness to top domestic lenders including UniCredit (CRDI.MI: ) and Intesa Sanpaolo (ISP.MI: ) has fueled expectations it could opt for a dual listing with Milan, a strategy that investment bankers say risks splitting the liquidity too much.

“A dual listing would not suit Prada. Investors would trade down shares,” a banker said, asking not to be named.

The owner of Miu Miu, Church’s and Car Shoe brands needs to raise cash to pay down debts of around 1 billion euros ($1.3 billion) and fund growth in Asia, where it expects sales to exceed those of Europe over the next three years.

Italian creditor banks Intesa Sanpaolo, which bought a 5.11 percent stake in Prada Spa four years ago, and UniCredit sit on the company’s board.

Media reports have said Italian banks would prefer Milan to Hong Kong, where no Italian company is traded.

Prada says it has not yet hired advisers for an IPO, but media have said the two Italian lenders would be among the possible bookrunners.

Prada, 95 percent owned by the families of Chief Executive Patrizio Bertelli and his fashion designer wife Miuccia Prada, has more recently played down chances of an imminent listing.

“We don’t even know if we list or not,” Prada vice president Carlo Mazzi told reporters last month. Asked about a possible location, he just said: “When you have to raise capital you look at where you can find it.”

ASIAN ALLURE

Prada Holding, which owns 94.8 percent of the fashion house Prada SpA, has debts totaling 630 million euros maturing in autumn 2012, partly a result of an acquisition spree in the 1990s. Prada SpA had debts of 429 million euros at end-October.

Analysts and bankers say Prada should focus on its long-term growth strategy in Asia rather than on paying down debts.

Prada expects record sales of 2 billion euros this year, mainly driven by Asia. Core earnings rose to 330 million euros in the nine months to end-October.

“The advantage of a listing in Hong Kong is the chance of getting higher multiples, like in the case of L’Occitane,” Bernstein senior analyst Luca Solca told Reuters.

Asia has dominated global IPO markets this year, and Hong Kong has been a particular hotbed, raising $48.7 billion through initial public offerings, according to Thomson Reuters data. The bourse accounts for about a fifth of global IPOs this year.

Shares in cosmetics maker L’Occitane International S.A. (0973.HK: ), the first French company to list in Hong Kong in May, are trading nearly 45 percent above their IPO price of HK$15.08, according to Thomson Reuters data.

Luxury menswear retailer Trinity Ltd (0891.HK: ), a unit of Chinese goods exporter Li & Fung Ltd (0494.HK: ), trades at around 40 times its 2010 forecast earnings, while French luxury giant LVMH (LVMH.PA: ) trades at around 23.

In order to float in Asia, Prada also needs to implement some corporate changes, another banker said. These include the appointment of two executive administrators based in Hong Kong and of three independent administrators.

Bertelli, who owns 35 percent of Prada Holding via the Luxembourg-based Pa.Be., has transferred half of his stake to three companies that will be given to his sons, a step that is also pointing to a future stock-market listing.

“Bertelli has started to face the issue of shares inheritance, with a view to list in the future,” a Prada spokesman said.

Miuccia and her brother Alberto and sister Marina own the remaining 65 percent of the holding via a different vehicle.

($1=.7580 Euro)

(Writing by Antonella Ciancio; Editing by Jon Loades-Carter and Will Waterman)

($1=.7551 Euro)

Dealtalk: Doubts devil Prada IPO plan