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New Sheriff in Town: Chow Tai Fook founder and New World Development Chairman Cheng Yu-Tung is about to become the richest Chinese. Photo: NWD

SOCIAL MOBILITY is apparently alive and well among the least likely of places -- tycoons.

Following jeweler Chow Tai Fook’s upcoming listing, founder Cheng Yu-Tung will become the richest Chinese, overtaking current top dog Li Ka Shing of Cheung Kong Holdings fame.

The listing of the jewelry unit from Mr. Cheng’s Tai Fook Group is scheduled for December 15, and could raise nearly 32 bln hkd, making it the biggest IPO by far this year in Hong Kong, and much larger than the 16.7 bln hkd that Milan-based Prada saw earlier this year.

And reaction to the jeweler’s IPO next month will be closely watched by investors, and will be a barometer on overall market sentiment in a very volatile period for the bourse, with the benchmark Hang Seng Index falling for five straight sessions lately, said a Chinese-language piece in Sinafinance.

The level of success of Chow Tai Fook’s mainboard debut next month will also serve as a litmus test for the sustainability of the PRC luxury goods consumer market.

Consumption of luxury items in the world’s most populous nation is expected to grow by some 18% annually over the next few years and comprise 20% of the global market by 2015, said a recent report by McKinsey.

Another curiosity to the imminent “regime change” at the top of China’s tycoon totem pole is that both moguls -- Cheng Yu-Tung and Li Ka Shing – have made most of their fortunes in the region’s topsy-turvy property sector – an industry that has been teetering on uncertainty lately with falling prices in Mainland China.

If all goes well, the public offer will also make Chow Tai Fook the world’s top jeweler by market value.

Chow Tai Fook has already begun overseas roadshows and promotions, and news of investor feedback should start trickling in soon.

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Chow Tai Fook is looking to ride the insatiable appetite for gold, silver and diamond-studded jewelry in Mainland China, purchases of which skyrocketed by nearly 50% year-on-year in the first seven months to well over 16 bln usd.
Photo: Chow Tai Fook

Listing sponsor Deutsche Bank values the jeweler’s total value (listed and non-listed portions) at between 241 bln and 302 bln hkd.

Chow Tai Fook is expected to see a profit of around 13.5 bln usd in 2014, up 56% on an annualized compound basis, which HSBC would then value at a more conservative 240-286 bln hkd.

The jeweler also owns the biggest sales network in Greater China with over 1,400 stores, while Hong Kong-listed peers Luk Fook (HK: 590) and Chow Sang Sang (HK: 116) have 700 and 240, respectively.

According to the most recent reports, Chow Tai Fook plans to put up around 20% of its total share value for sale to cornerstone investors, representing around 4.7 bln hkd in value.

Sinafinance reported that sources say current initial investor response is leaning toward a relatively high valuation for the company, but that most prefer P/E ratios of 25 times or lower.

However, there is still general confidence that Chow Tai Fook and its sponsors can achieve a “reasonably high” valuation for the IPO.

Hutchinson Whampoa Ltd and Cheung Kong Holdings Chairman Li Ka Shing – currently the world’s richest person of East Asian descent and the globe’s 11th wealthiest – has a net worth of 26 bln usd.

If Chow Tai Fook’s December listing goes as planned, then Mr. Li will have to settle for second place on the Chinese totem pole of tycoons.

See also:

TYCOON CHENG: Fundraising In Fretful Times

GREENTOWN Chairman, How Can You Face Shareholders? 

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