Comment: Does Hong Kong still appeal to retailers?

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For European retail, consumer and luxury goods companies looking to launch IPOs, the Hong Kong Stock Exchange (HKEx) once had tremendous appeal.

From 2009 to 2011, a flurry of brands were considering a Hong Kong IPO, including L’Occitane and Prada.

At the time, Hong Kong offered attractions that their home countries did not: a booming IPO market with valuations at a premium to Europe; a region boasting high economic growth; strong consumer interest; and high spending on consumer and luxury goods.

This combination enticed companies already wary of the uncertain European market, especially those looking to expand in Asia, where sales and earnings were strong.

Prada’s launch on the HKEx in June 2011, for instance, was driven by Hong Kong’s breadth of wealthy investors and thriving luxury market, and marked the end of a decade of struggles to list. The luxury brand’s first attempt to go public in Milan fell through in the wake of 9/11, and several failures followed due to unfavourable markets. After posting solid profits in 2010, Prada tried again, this time focusing on Hong Kong, and its 10-year effort paid off handsomely. But that was last year.

Part of Hong Kong’s appeal was that it was easier and less costly to list there. Compared with other major bourses, filing and reporting rules were less onerous. However, Hong Kong officials recently proposed a tightening of regulations of IPOs to the extent that bankers who don’t abide by these stricter rules face prosecution. And the movement is gaining traction since a securities regulator recently backed the proposal. As a result of these developments, and the broader softness in Asia, international companies seeking IPOs appear to be shying away.

It begs the question: as IPOs in Hong Kong waver, could the US be the next destination for Europeans looking to list? The answer is yes. Hong Kong is about to face stiff competition from across the Pacific as European companies, particularly ones with US growth potential, are looking Stateside to list their shares.

The US has a strong history of institutional investors paying premiums for high-growth, premium-rated retail and consumer IPOs, something that doesn’t exist in Europe. It also often offers a more direct comparable peer group for valuation purposes.

Furthermore, the US buy-side investor base has a deeper knowledge of the US market, hence more confidence in its economy, as well as a better understanding of business models that are more prevalent Stateside.

Some are already putting out feelers. Privalia Venta Directa, a Spain-based online private-Sales club, is exploring listing with Nasdaq.

It could prove to be the first of a wave of European companies shifting their focus.

After all, the US economy is gradually picking up, and the New York Stock Exchange and Nasdaq have experienced strong performance in recent months. As a result, 2013 could well be New York’s year for IPOs, with European retailers and branded consumer companies among the first in line to list.