US handbags and accessories house Coach Inc. is the latest in a long list of fashion and consumer groups to seek a listing in Hong Kong. As structured, however, the proposed transaction is likely to do little beyond generating press coverage for the brand, but perhaps that’s what it’s aimed at?
Some background. Founded in 1941, Coach was acquired by Sara Lee Corporation in 1985, and floated on the New York Stock Exchange in 2000. The company, which says it offers quality accessories with classic, modern American styling, is well anchored in North America. It operates 400 stores and is present in some 900 department stores in the US. It was also very much a pioneer of internet sales, with an online store that first opened in 1999. Outside of its home market, Coach’s products are offered in 182 department stores in over 20 countries.
This is not a significant Asia story – yet. While about $900 million, equivalent to a quarter of its turnover, is said to come from the region, where it has a presence in 12 countries, Coach is primarily well established in Japan, with 161 points of sale, and where it bought back Sumitomo Corporation’s share of a joint venture in 2001.
To a much a lower extent, it is also strong in Korea through retailers Lotte and Shinsegae, and it just bought back its distributor in Singapore in 2010. In China, Coach is present in 41 locations (up from 24 in 2008), with an average store size of 1,924 square feet, and where it generates retail sales in excess of $100 million. But this is a recent phenomenon – its first flagship store there only opened in April 2010. Coach has plans to open in another 30 locations in China in 2011.
The purpose of the proposed listing in Hong Kong appears to be purely a PR exercise, aimed at creating brand awareness with wealthy shoppers in greater China.
It hasn’t been disclosed which bank will sponsor Coach’s foray on HKEx—Goldman Sachs, Morgan Stanley and Prudential Securities led its NYSE IPO years ago—but the company has said that the listing would take the form of Hong Kong depositary receipts, without any stock, neither primary nor secondary, being offered to investors.
So far, only two companies have listed HDRs in Hong Kong: Brazilian mining giant Vale in December 2010—which also chose not to conduct a simultaneous ECM offering—and Japan’s online broker SBI Holdings. The average daily trading volume in Vale’s HDRS over the last three months was just below US$243,000. SBI has fared better since coming to market in mid-April this year, although it did conduct a bone fide offering at the time of its listing.
As of May 9, only 0.33% of Vale’ s issued share capital was in Hong Kong’s Central Clearing and Settlement System (CCASS). At the same date, insurer Prudential from the UK, which also listed in Hong Kong without an equity offering, only had 0.09% of its shares held by investors there.
Now that hardly justifies the cost, time, effort and disclosure associated with the exercise. And there is no reason to believe the listing of Coach in Hong Kong will be any different.
Investors will naturally trade where liquidity exists (in the case of Coach, on the NYSE), and an active market is unlikely to develop in Asia absent a significant amount of shares being offered for subscription or sale. The choice of HDRs also looks odd given the lack of a successful track record for the instrument in Hong Kong.
Coach may find itself making headlines in Asia, but it’s unlikely to be in the financial pages.