New World China Retail Unit Plans $302 Million IPO

25 Jun 2007 • by Natalie Aster

New World Department Store China Ltd., a unit of billionaire Cheng Yu-tung's New World Development Co., may raise as much as HK$2.36 billion ($302 million) in an initial offering to aid expansion, according to a share-sale document, reported The Bloomberg.

New World Department Store will sell 406.3 million new shares, equal to a 25 percent stake, at HK$4.8 to HK$5.8 apiece, in an initial public offering in Hong Kong, according to the e- mail sent to international institutions.

Hong Kong stock offerings by Chinese consumer goods and services companies have raised $2.8 billion this year, as demand surges in the world's most populous nation. Retail sales in China, the world's fastest-growing major economy, jumped 15.2 percent in the five months through May from a year earlier.

``Investors have very high hopes for retail stocks in China and they're willing to pay pretty steep valuations,'' said Anthony Teoh, a Hong Kong-based analyst at South China Finance & Management Co. Hong Kong-listed stocks with retail operations in China trade at an average price of 30 times earnings, he said.

Consumption in China has been boosted by an economy that expanded a faster-than-expected 11 percent in the first quarter and an urbanization rate that increased by 14 percentage points to 43 percent in the 10 years to 2005.

Wal-Mart Stores Inc., the world's biggest retailer, and Carrefour SA, Europe's largest, are expanding in China, where retail sales grew an average of 11 percent a year in the decade to 2005.

Intime Department Store (Group) Co., which operates five stores in Zhejiang, held an initial public offering in Hong Kong in March, raising HK$2.8 billon for capital to accelerate expansion as competition intensifies.

New World Department Store said the number of shares on sale may be increased by 15 percent to cover demand and help stabilize the share price. The company began taking orders from international institutions today for up to 90 percent of the shares on sale. The sale price of the stock will be set on July 5, according to the e-mail.

The company, controlled by Cheng's family, operates the ``New World'' brand of department stores in China and the ``Ba Li Chun Tian'' chain in Shanghai.

It runs 28 stores in 16 Chinese provinces and municipalities, including 16 stores it owns and another 12 that it manages without owning, according to the e-mail.

New World Department Store is raising capital to expand its store network, acquire leased store properties and increase the size of and refurbish some stores, it said.

The retailer will be spun off from New World Development Co. upon its listing on the Hong Kong stock exchange July 12.

Deutsche Bank AG and HSBC Holdings Plc are arranging the share sale.

New World Development's shares slid 2.9 percent to HK$20.15 today, after dropping 3.4 percent earlier, the biggest decline since May 16. The stock has gained 29 percent this year, compared with a 9.6 percent increase in the benchmark Hang Seng Index.