China's Shaanxi Coal Industry plans $2.7 billion IPO

China's Shaanxi Coal Industry plans $2.7 billion IPO

Stock Market Predictions

SHANGHAI (Global Markets) - Shaanxi Coal Industry plans an initial public offering in Shanghai to raise up to 17.3 billion yuan ($2.7 billion) in what could be China's biggest IPO this year.

The China Securities Regulatory Commission (CSRC) said late on Thursday that it would review Shaanxi Coal's IPO application on August 29.

Shaanxi Coal would issue up to 2 billion shares in the offering, according to a draft prospectus posted on the CSRC website.

A successful IPO would make the company the country's third-largest publicly traded coal miner by output after China Shenhua Energy Co Ltd (1088.HK)(601088.SS) and China Coal Energy Co Ltd (1898.HK)(601898.SS), Shaanxi Coal said, adding that the proceeds would fund mining activity and replenish working capital.

It would also be the biggest IPO in the mainland market this year, surpassing Sinohydro Group Ltd's planned $2.5 billion offering.

China's IPO market slowed by a fifth in the first half, lacking the big deals of the year before, with fundraising dominated by smaller companies. [ID:nL3E7JG0X6]

In the first six months, only about a tenth of the companies seeking listings chose to do so on the Shanghai Stock Exchange, with the rest going to the smaller Shenzhen bourse, which houses the Nasdaq-style ChiNext market, Thomson Global Markets data showed.

State-owned Shaanxi Coal and Chemical Industry Group Co Ltd SHAANB.UL owns 71 percent of Shaanxi Coal.

China is the world's biggest coal-producing country, with output at 3 billion tonnes in 2009, accounting for about 46 percent of total global production that year.

Shaanxi Coal is headquartered in Xi'an, in the northern Chinese province of Shaanxi, which had known coal reserves of about 170 billion tonnes, the company said.

CICC, BOC International (China) Ltd and Citic Securities are joint underwriters of the IPO.

($1 = 6.390 yuan)

(Reporting by Soo Ai Peng; Editing by Chris Lewis)

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Esprit shares tumble 20 percent after dismal earnings

Esprit shares tumble 20 percent after dismal earnings

Stock Market Predictions

HONG KONG (Global Markets) - Shares of Europe-focused fashion retailer Esprit Holdings Ltd (0330.HK) plunged for the second day in a row on Friday, falling more than 20 percent after the company reported a worse-than-expected fall in full-year profit.

A 98-percent decline in profit announced at midday on Thursday led to 17 percent decline then and to a spate of downgrades by securities houses.

Traders voiced concerns about the company's medium-term business outlook despite Esprit's plans to restructure its business and reinvigorate its brand, brokers said.

Shares of Esprit were trading at HK$12.02 on Friday morning, down more than 19 percent after sinking to HK$12, the lowest since October 2002. It was the worst performer on the benchmark Hang Seng Index .HSI on Friday, which was up more than 2 percent.

"There is definitely some liquidation of long positions, particularly from the major funds," said Jackson Wong, vice president for equity sales at Tanrich Securities. "This stock has been on a lot of people's sell list even before the results yesterday."

Esprit is also the biggest loser among Hang Seng Index components for the year, down nearly 70 percent. The losses on Thursday and Friday marked its worst two-day drop since October 1997.

CLSA said in a research note that it had cut its earning estimates for Esprit by 52-83 percent for the next two years and slashed its price target by 47 percent to HK$12.50 from HK$23.50. It downgraded the stock to sell from underperform.

TURNAROUND PLAN RISKY

Esprit on Thursday said it planned to sell its North American operations after reporting a massive slide its full-year profit.

Esprit, whose competitors include Swedish clothing retailer Hennes & Mauritz AB (HMb.ST), U.S. group GAP Inc (GPS.N) and Spain's Inditex (ITX.MC), said the business outlook for the next six months was challenging, citing weak consumer sentiment in Europe, which is embroiled in a worsening debt crisis.

Europe generated about HK$26.7 billion ($3.4 billion) in sales, or 79.1 percent of Esprit's total, for the year to June 2011, down from 83.1 percent a year ago.

"Since the restructuring and transformation needs three to four years to complete, there is still a long, tough way to go, a lot of uncertainty ahead," said UOB Kay Hian director Steven Leung, adding that the stock would come under more selling pressure.

Esprit, which also competes with Japan's Fast Retailing (9983.T) in Asia, said on Thursday it would invest more than HK$18 billion in the company until its year ending 2015.

Analysts said the plan was fraught with risks.

"Management announced a HK$18.5 billion investment plan for the next four fiscal years to rejuvenate the brand, which in our view is risky," Credit Suisse said in a research note.

"The additional operating cost will affect Esprit's near to medium-term profitability and the large investment will further burden Esprit's cash flow," it said.

Credit Suisse also downgraded Esprit to underperform from neutral and cut its share price target to HK$9.65 from HK$25.15.

Some analysts are more upbeat about the firm's future.

"We view Esprit's decision to invest in its brand as the right decision. The real question boils down to whether the brand is impaired to a level where it cannot be turned around," Gary Pinge, a Macquarie Equities Research analyst, said in a research note.

"We think that Esprit has a good brand which can be turned around," he said. He reiterated he had an outperform rating on the stock, but cut his target price by 42 percent to HK$19.50.

Esprit said on Thursday it is ramping up investment in its brand. It is investing an extra HK$1.7 billion a year over the next four years to promote its brand, with marketing spending expected to reach 6-8 percent of revenue in the new fiscal year. The ratio will drop to 4-5 percent from financial year 2014/15, it said.

($1=7.791 HK dollars)

(Additional reporting by Clement Tan; Editing by Charlie Zhu and Matt Driskill)

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Esprit falls to 3-week low after profit warning

Esprit falls to 3-week low after profit warning

Stock Market Predictions

HONG KONG (Global Markets) - Shares of Esprit Holdings (0330.HK) fell 8.6 percent to its lowest in about three weeks after the Europe-focused clothing retailer warned of a sharp drop in yearly profit due to one-off restructuring costs.

The stock fell to as low as HK$19.96 before steadying at HK$20.15 as at 0200 GMT, still down 7.8 percent. That compared with a 0.76 fall in the benchmark Hang Seng Index .HSI.

Esprit said late on Thursday that it was set to post a sharp drop in 2010/11 profit as a result of one-off costs related to restructuring. Esprit, whose results are due on September 15, said its board had approved a strategic plan to restructure store operations.

Esprit, which competes with Swedish clothing retailer Hennes & Mauritz AB (HMb.ST), U.S. group GAP Inc (GPS.N) and Spain's Inditex SA (ITX.MC), had said earlier this year that its sales in Europe fell 3.6 percent in local currency terms for nine months ended in March, while Asia-Pacific sales rose 26.3 percent. Sales in Europe accounted for 79.1 percent of total turnover during the period.

(Reporting by Donny Kwok; Editing by Ken Wills)

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China's XCMG to market $1.5 billion HK share offer from Sept 5

China's XCMG to market $1.5 billion HK share offer from Sept 5

Stock Market Predictions

HONG KONG (Global Markets) - XCMG Construction Machinery Co Ltd (000425.SZ) is slated to start pre-marketing on September 5 for an up to $1.5 billion planned share listing in Hong Kong, IFR reported on Friday.

The Shenzhen-listed company, which makes bulldozers, excavators and heavy trucks, secured approval from the listing committee at Hong Kong's stock exchange on Thursday, added IFR, a Thomson Global Markets publication.

The company joins rival Sany Heavy Industry Co Ltd (600031.SS) and about 12 other companies that have announced plans to raise about $11.7 billion in September from share sales in Hong Kong, the world's biggest IPO market for two years running. XCMG plans to offer 593 million shares.

China International Capital Corp (CICC) and Morgan Stanley (MS.N) were hired as joint global coordinators for the deal, with Credit Suisse Group AG (CSGN.VX), HSBC Holdings Plc (0005.HK)(HSBA.L), Macquarie Group Ltd (MQG.AX) and BNP Paribas SA (BNPP.PA) helping to manage the offering.

(Reporting by Jing Song; Writing by Elzio Barreto; Editing by Chris Lewis)

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Yum plans to buy out Little Sheep for $586 million

Yum plans to buy out Little Sheep for $586 million

Stock Market Predictions

HONG KONG (Global Markets) - Yum Brands Inc (YUM.N), parent of the KFC, Taco Bell and Pizza Hut fast-food chains, has offered to buy out China's Little Sheep (0968.HK) for $586 million, paying a premium to introduce the popular hot pot chain to a global audience and sending the Chinese restaurant shares to a record.

Analysts said the deal was positive for both Yum Brands as it expands in China and for Little Sheep, which has more than 300 hot-pot restaurants, primarily in China, as it would help save costs.

Little Sheep said China's highly fragmented restaurant industry had seen competition intensify in recent years, and going private would reduce its exposure to market volatility and give it quicker access to growth capital.

"The deal is a positive for both parties," said Ample Capital analyst William Lo.

"It has synergy for both Yum and Little Sheep as they can share and save costs on logistics. (Little Sheep) can share costs with Yum's other operations such as Pizza Hut in China."

Lo said there was still room for Little Sheep to grow in China.

Yum offered to buy out most of the shares of Little Sheep that it does not already own at HK$6.50 each in cash for up to HK$4.56 billion, taking its stake to 93.2 percent from 27.2 percent. The price represents a 30 percent premium over the previous close.

"It is positive to Little Sheep with a premium of 30 percent, while Yum can increase product diversity," said Pacific Epoch retail analyst Marie Jiang.

Global food operators wanting to enter the China market have had to tread carefully in the past few years.

Coca-Cola Co (KO.N) launched a $2.4 billion bid for Chinese juice producer China Huiyuan Juice Group Ltd (1886.HK) in 2008 but the deal was blocked the following year by the government on competition concerns.

Little Sheep is seen differently in terms of brand-name effect and the deal with Yum is expected to have a higher chance of receiving regulatory approval, Jiang said.

Yum had said earlier that it would wait for approval from regulators before making a formal offer for the remaining shares in the chain.

SHARES AT RECORD HIGH

News of the deal lifted Little Sheep shares to an all-time high of HK$6.38 on Friday. The stocks ended up 24.5 percent at its record close at HK$6.14. This was compared to a 0.88 percent gain in the benchmark Hang Seng Index .HSI.

"The (offer) price is fair and is not expensive as it represents about 30 times P/E, which is similar to other restaurant operators such as Ajisen (China) Holdings Ltd (0538.HK)," said Lo from Ample Capital.

Analysts said the deal also reflected a strategy by global food operators, such as McDonald's Corp (MCD.N), in tapping the China market by localizing their products to suit local tastes.

Based in China's Inner Mongolia province, the Little Sheep chain is known for its fresh mutton and beef, colorful restaurants. It is also known for its environmentalist consciousness in using paper less offices, energy-saving electrical appliances and discouraging the use of disposable utensils.

"China is an important market for Yum Brands," said Sam Su, chairman and chief executive of Yum's China Division.

"In the long term, with its global business network and successful brand-building experience, Yum will work with Little Sheep to explore effective ways of introducing the hot pot concept and the Little Sheep brand to a wider global audience," Su said, without giving a timetable.

Chinese hot pot is meat and vegetables cooked in a variety of broths at one's table. Popular with families and groups, diners order raw chicken, fish, other meats and vegetables they cook themselves in a central pot or individual pots at each seat.

Little Sheep would stick to its plan of opening 40 outlets this year in China, Chairman Zhang Gang told a news conference.

Zhang and another founder Chen Hongkai will hold 6.8 percent of the company after completion of the proposed deal.

The China division of Yum Brands opened more than 500 new restaurants in 2010. KFC continues to be the number one fast-food brand in the mainland with more than 3,200 outlets in more than 700 cities. It also has 520 Pizza Hut restaurants in more than 130 cities.

(Additional reporting by Terril Jones in Beijing; Editing by Chris Lewis and Dhara Ranasinghe)

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Prada's $2.1 billion IPO makes modest HK debut

Prada's $2.1 billion IPO makes modest HK debut

Stock Market Predictions

HONG KONG (Global Markets) - Italian fashion house Prada SpA (1913.HK) posted slim gains in its $2.14 billion IPO debut in Hong Kong, defying expectations for a weak start as investors who couldn't buy into the IPO snapped up the stock in a buoyant market.

The Milan-based company is the second to post first-day gains among the billion dollar-plus IPOs in Hong Kong this year, after MGM China (2282.HK), which rose a tepid 1.8 percent.

Many other global brands are exploring options to list in Hong Kong and Prada's performance is critical in attracting such companies to the world's hottest IPO market.

"It may give an idea to other potential brands listing not to price issues too aggressively," said Conita Hung, head of equity research of Delta Asia Financial.

"Consumers are willing to pay a very high premium chasing after brands, but it's not the case for investors. Investors are concerned about reasonable valuation and pricing."

Prada shares closed 0.3 percent higher at HK$39.60 on Friday, after trading as high as HK$40 earlier in the session.

The maker of luxury bags and Miu Miu dresses priced its $2.14 billion initial public offering at HK$39.50 a share, the bottom of a revised indicative range.

Prada's small gain surprised some analysts who attributed this in part to Friday's 1.9 percent rise in the benchmark Hang Seng Index .HSI.

Both commodities trader Glencore (0805.HK) and luggage maker Samsonite International SA (1910.HK) fell on their first day.

Some of the demand for Prada shares on Friday came from fund managers who didn't participate in the IPO, also helping lift the stock.

Prada's IPO received bids for just half the shares on offer for Hong Kong retail investors, compared with more than 2,000 times oversubscription for the IPO of handbag retailer Milan Station Holdings Ltd (1150.HK), the most popular offering in 2011.

Samsonite had demand worth 1.23 times the volume of shares on offer.

'NEW WAVE'

The move by consumer-focused companies such as Prada to list in Hong Kong is part of a trend to raise brand awareness in China, the world's fastest growing luxury market.

"We're opening a new wave for the luxury goods sector," Chief Executive Patrizio Bertelli said at a ceremony at the Hong Kong stock exchange.

Bertelli handed a glass-encased, bright-red Prada leather handbag during the traditional ceremony at the exchange, receiving a glass bull from Ronald Arculli, chairman of Hong Kong Exchanges & Clearing Ltd (HKEx) (0388.HK).

"We're positive that the greater China region is going to be one of the most interesting prospects in the luxury industry," Bertelli said, adding that the first listing of an Italian company was "a landmark" for the exchange.

Prada had originally set an indicative price range of HK$36.50 to HK$48 per share, before narrowing it to between HK$39.50 and HK$42.25 each last Thursday.

Prada and shareholders Prada Holding BV and Intesa Sanpaolo SpA (ISP.MI) sold 423.3 million shares in the offering, raising HK$16.72 billion ($2.14 billion).

In a statement on Friday, Intesa said its net income will be boosted by 255 million euros ($365.3 million) from the Prada stake stale. The bank slashed its stake in Prada to 1 percent from 5 percent.

In Italy, luxury leather goods maker Salvatore Ferragamo SpA priced its Milan initial public offering on Thursday at 9 euros a share.

Prada, set up in 1913 by Mario Prada as a business selling leather bags, trunks and silverware to the European elite, has become a global fashion empire, with 319 directly operated stores, a third of which are in Asia-Pacific.

The company received tepid demand from retail investors for its IPO as potential buyers were put off by having to pay Italian capital gains tax.

That, coupled with choppy equity markets, had led Prada shares to fall in grey market trading. Phillip Securities Group said in a report on Thursday night that the stock had fallen 2.9 percent to HK$38.35, pointing to a weak start on Friday.

The IPO valued Prada at about $13 billion, compared with the nearly $80 billion market capitalization of LVMH (LVMH.PA), $28.5 billion for Hermes International SCA (HRMS.PA) and $21 billion for PPR SA (PRTP.PA).

At the revised guidance, Prada would trade at a price to-earnings ratio of 22.8-24.4 times, more in line with global rivals.

(Additional reporting by Donny Kwok; Editing by Chris Lewis and Vinu Pilakkott)

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Gloucester shares surge as Noble backs Yancoal bid

Gloucester shares surge as Noble backs Yancoal bid

Stock Market Predictions

SYDNEY (Global Markets) - Shares in Gloucester Coal (GCL.AX) galloped nearly 30 percent higher on Friday after major shareholder Noble Group (NOBG.SI) said it will back a merger with China's Yanzhou Coal Mining Co Ltd (1171.HK) worth more than A$2 billion.

Analysts said on face value, the merged group would have an enterprise value of about A$6.8 billion, which included a heavy debt load.

Gloucester's 64 percent shareholder, Hong Kong-based Noble, said it would back the deal, which will leave it with a 14.8 percent stake in the merged group.

"Noble has informed the independent directors of Gloucester that, subject to approval by the Noble board of directors and in the absence of a superior proposal, it intends to vote its shareholding in favor of the merger proposal," Noble said in a statement.

Sydney-based Gloucester will be merged with Yancoal Australia Ltd., and Yanzhou will own 77 percent of the new company.

Gloucester shareholders will own the rest and receive A$700 million ($705.36 million) in cash, the equivalent of A$3.20 in per share, Yancoal said in a statement. Each Gloucester Coal shareholder will receive one share in the merged company.

Shareholders will also be entitled to participate in a pool of "contingent value rights" shares that protect the value of the merged company's shares. Under the terms of the deal, the shares will be protected at a value of $6.96 each.

This puts the total value of the deal at A$10.16 per share, or A$2.1 billion, a 45 percent premium to Gloucester's last trade before the deal was announced.

Gloucester shares surged 29 percent to a high of A$9.04, but that was well below the ostensible value of the deal, which analysts said reflected investors' uncertainty over the value of Yancoal's assets.

"You can't really value the deal without knowing the value of the Yancoal assets," said CLSA analyst James Stewart.

Yanzhou (1171.HK) shares were trading up 5.1 pct.

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Australia coal M&A graphic: r.reuters.com/neq65s

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FLOAT REQUIREMENT

The deal helps Yancoal meet a requirement to float 30 percent of its Australian assets by the end of 2012, a condition of its A$3.3 billion takeover of Felix Resources in 2009, but does not go far enough.

With Yancoal owning 77 percent of the merged group, it would need to dilute its stake down to 70 percent at some point later in 2012 to fully meet the requirement.

A lawyer not involved in the deal said he expected Australia's Foreign Investment Review Board to approve the deal.

"There's nothing that really leaps off the page as being of concern. It's not a supersensitive asset. There are no national security issues attached to it," said the lawyer, who declined to be named due to the sensitivity of the review process.

Noble Group (NOBG.SI) said it would make a one-time gain of about $200 million from the deal. Its shares rose 0.4 percent to S$1.195.

In a filing to the Singapore stock exchange Noble said it will receive about 130.9 million Yancoal Australia shares and A$420 million ($416 million) under the terms of the proposed merger.

Gloucester and Yancoal spokesmen said none of the parties involved were likely to release further details pending the outcome of an independent expert's report valuing the offer and other due diligence work expected to take until February.

The merger is conditional on the new entity obtaining a listing on the ASX, Gloucester said. It is also subject to approval by at least 75 percent of Gloucester shareholders.

Yancoal and Gloucester both have mines and projects in the Australian states of New South Wales and Queensland. Gloucester aims to expand production to 10 million tonnes a year by 2016, while Yancoal expects to produce 20 million tonnes a year by 2015.

That would put a combined group ahead of Whitehaven Coal (WHC.AX), which last week announced a $2.5 billion takeover of Aston Resources (AZT.AX) to create a company producing 25 million tonnes a year by 2016.

Since taking over Felix Resources in 2009, Yancoal has bought Syntech Resources for A$203 million and is about to complete the A$297 million acquisition of Premier Coal from Wesfarmers (WES.AX).

Those assets are not included in the deal.

It sought to buy Whitehaven Coal earlier this year but the two were unable to settle on a price.

(Reporting by James Regan, Victoria Thieberger; and Sonali Paul; Editing by Ed Davies)

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