Italian luxury goods maker Prada raised a lower-than-expected US$2.14 billion in its Hong Kong share sale as turbulent global markets and a tax hurdle dampened investors’ enthusiasm.
The family-owned brand sold 423.2 million shares at HK$39.50 (US$5) each, after earlier saying it could raise as much as US$2.6 billion before any option to issue extra shares, which would have pushed the deal to US$3 billion in all, Dow Jones Newswires cited an unnamed source as saying.
The Milan-based firm, which is hoping to tap surging demand for luxury goods in Asia, had previously said it might price the shares as high as HK$48 each. The -lowered price indicated weaker-than--expected demand.
Prada, which is floating 20 percent of its shares, will make its trading debut in the Asian financial hub on Friday.
At a time of unease in markets around the world some firms have decided to delay or even cancel their listings in Hong Kong, the world’s No. 1 initial public offering (IPO) market for the past two years.
Earlier this month, Australian miner Resourcehouse shelved an IPO originally slated to raise as much as US$3.6 billion, citing weak market conditions. Luggage maker Samsonite had a poor trading debut in Hong Kong on Thursday after its shares closed nearly 8 percent below their IPO price.
“The Hong Kong market has been pretty weak for the last couple of months ... and [the Prada IPO] was expensive in the first place,” Alex Au, managing director of hedge fund Richland Capital Management said.
Although only about 10 percent of the Prada offering was set aside for retail investors, some of Hong Kong’s savvy stock buyers may have also been turned off by Italian tax rules that could shrink their profits.
Hong Kong and Rome do not have a tax treaty in place so shareholders in the territory would have to pay a 12.5 percent Italian capital gains tax and lose 27 percent of their dividend income to a separate withholding tax.
“So if, for example, their dividend income was US$100, only US$73 would be remitted to them, because it is regarded as Italian-sourced income,” Ayesha Lau, partner in charge of tax at KPMG in Hong Kong said.
“But how are [Italian tax authorities] going to enforce it? I -really don’t know the answer to that,” she said.
Lau added that Hong Kong investors also faced a cumbersome tax filing process with some documentation only available in Italian.
Most Hong Kong institutional investors are not used to accounting for capital gains tax in a city where it does not exist, weighing down enthusiasm for the stock, Alex Au said.
“For a lot of funds [here] there is no such thing as making provisions for capital gains tax,” he said.
The fashion house, which includes the Prada, Miu Miu, Church’s and Car Shoe brands and is 95 percent owned by the Prada family and executives, is the latest high-end fashion brand to tap the huge Chinese market, the world’s fastest-growing market for luxury goods.