Prada Case
From the financial point of view, the Italian luxury brand- Prada, which was known for its design innovation, can’t claim itself successful. Although it has the ability to keep its revenue over 1.5 billion euros for three consecutive years, it also contains more than 1 billion euros of debt maturing within 12 months sitting on its balance sheet.
One of the best solutions for Prada to solve this problem is to raise capital in the stock market, which we could refer as IPO. Given the current market conditions, listing in Hong Kong might appears to be the best choice after all.
But, before we go further in details about the pros and cons about listing in Hong Kong, we should first discuss the reasons why we choose IPO over Debt and Strategic partnership. Compare to issuing debt, an IPO will not add any more burden to the company’s balance sheet, which for Prada, was already showed a sign of insolvency and over leveraged. Another issue is that no firms in this industry have ever raised money in US bond market. Although “dim sum bond” – a Chinese Yuan denominated bonds issued in Hong Kong could be the best alternative to this situation, however, the short life and the exchange risk it involved are its most disadvantages. How about sale some portion of the firm to the private equity firms to raise capital? For this deal, it seems that they will not only offer a sizeable premium to the family, but also to offer some important positions on the board too. But, compare to IPO, it will not increase Prada’s publicity through this method. And also, an IPO in Hong Kong will give the company more opportunity to expand their Asia market, especially in China and Japan. Choosing a Strategic Partnership would be just like giving that huge potential profit away.
So, the next question is how do we actually apply the IPO
One of the best solutions for Prada to solve this problem is to raise capital in the stock market, which we could refer as IPO. Given the current market conditions, listing in Hong Kong might appears to be the best choice after all.
But, before we go further in details about the pros and cons about listing in Hong Kong, we should first discuss the reasons why we choose IPO over Debt and Strategic partnership. Compare to issuing debt, an IPO will not add any more burden to the company’s balance sheet, which for Prada, was already showed a sign of insolvency and over leveraged. Another issue is that no firms in this industry have ever raised money in US bond market. Although “dim sum bond” – a Chinese Yuan denominated bonds issued in Hong Kong could be the best alternative to this situation, however, the short life and the exchange risk it involved are its most disadvantages. How about sale some portion of the firm to the private equity firms to raise capital? For this deal, it seems that they will not only offer a sizeable premium to the family, but also to offer some important positions on the board too. But, compare to IPO, it will not increase Prada’s publicity through this method. And also, an IPO in Hong Kong will give the company more opportunity to expand their Asia market, especially in China and Japan. Choosing a Strategic Partnership would be just like giving that huge potential profit away.
So, the next question is how do we actually apply the IPO