Hong Kong Equity Issue: Topsports’ HK$9bn Hong Kong IPO

IFR Asia Awards 2019
3 min read
Fiona Lau

Sailing through

Months of anti-government protests led to a hiatus in Hong Kong IPOs during the summer, before the HK$9bn (US$1.15bn) float of Topsports International in September helped restore confidence and pave the way for a fourth-quarter rush.

After a spate of giant technology IPOs in 2018, the supply of big IPOs in Hong Kong in 2019 was thin from the start. Protests starting in June further hit new stock issuances in the city, where IPO volume fell 44% in the first nine months of 2019 compared to the same period in 2018, according to Refinitiv data.

After a quiet summer, Topsports, the sportswear business of Chinese footwear retailer Belle International, decided to brave the market with a sizable offering in September. On the day the company started pre-marketing, the benchmark Hang Seng Index was down 12% from the year’s high of 30,280.12 points in April.

Pre-marketing finished on September 17 but the company and the leads did not open books immediately as they wanted to make sure the valuation was right. Bookbuilding was also held back to avoid clashing with the US$5.75bn Hong Kong IPO of Budweiser Brewing Company APAC.

Investors liked the business of Topsports, which distributes brands such as Nike and Adidas through one of the largest retail networks in China with more than 8,300 directly operated stores. According to Frost & Sullivan, Topsports was the largest sportswear retailer in China by sales value in 2018 with a 15.9% market share.

The company also showed rapid growth. It posted a net profit of Rmb2.2bn (US$281m) for the year ending February 28 2019, up 53% from a year earlier.

However, there was concern at one point whether its private equity shareholders would agree to list the company at a reasonable valuation. In 2017, a consortium led by Hillhouse Capital and CDH Investments took Belle private in a HK$53.1bn deal. Topsports was wholly owned by Belle before the IPO.

The company eventually launched the sale of 930m primary shares, representing a 15% free float, at an indicative price range of HK$8.30–$10.10 per share or a competitive valuation of a forecast end-February 2021 P/E of about 14–17.

The deal was oversubscribed after the first day of bookbuilding, even without a cornerstone tranche. Momentum continued to build and the IPO finally priced at HK$8.50 per share, valuing the company at US$6.7bn.

Topsports shares rose 8.8% on debut to HK$9.25 on October 10 and touched a high of HK$10.50 on October 18.

The strong debut helped draw investors back to the Hong Kong IPO market, fuelling a listing rush at year-end.

Topsports plans to use the funds raised to repay short-term bank loans and repay debt to Belle. Bank of America and Morgan Stanley were the sponsors. The two banks were also joint global coordinators and joint bookrunners with CICC and Goldman Sachs.

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