Prada's HK IPO retail demand off to slow start on tax concerns

City A.M. Reporter
Milan-based fashion house Prada has got off to a slow start for the retail portion of its up to $2.6bn (£1.6bn) Hong Kong IPO, with some investors put off by having to pay Italian capital gains tax, brokers said on Wednesday.

Retail investors are lively players in Hong Kong initial public offerings, especially for popular consumer brands, and usually about ten per cent of shares in IPOs are set aside for them.

However, demand for Prada's retail offering has been tepid, with brokers blaming the 12.5 per cent capital gains tax payable in Italy as the main culprit.

Many investors have withdrawn margin financing orders to buy Prada shares, several retail brokers in Hong Kong told Reuters.

"We received little demand from our (retail) clients for the (Prada) shares. It might be the 12.5 per cent tax that scared them away and the pricing itself was expensive when it compared with its peers," said Alfred Chan, chief dealer at Cheer Pearl Investment.

"Unlike institutions, our retail clients hold the shares for a much shorter term," he added.

Prada, known for its leather handbags, brightly-coloured shoes and long boots, has drawn stronger interest from fund managers wanting exposure to the company's strong growth prospects, particularly in Asia.

A source told Reuters earlier this week that the institutional portion of the offer had been five times subscribed despite criticism over its rich pricing.

Bright Smart Securities has seen margin finance demand plunge to HK$50m (£3.9m) yesterday from HK$100m on Monday.

Phillip Securities has seen orders drop to HK$17m today from HK$45m on Monday. Haitong Securities, though, has seen a slight pick up, with orders edging to HK$13m on Tuesday from HK$10m on Monday.

Margin financing at the three brokers totalled $10.3 million, compared with about $260 million worth of shares available under Prada's retail offer.

IPOs in hot demand tend to draw large volumes of margin financing as investors put in bids several times larger than what they actually want to purchase in the hopes of securing some portion of the offering.