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Home textile firms plan floats
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08:16, September 03, 2009

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Chinese home textile companies are lining up for initial public offerings (IPO) this year, which may change the face of the industry, analysts said.

Luolai, the Shanghai-based high-end home textile supplier, started its new stock subscription yesterday, putting it in the vanguard of those seeking a stock market listing.

Luolai has been marketing itself avidly on the Internet. "We have set the IPO price at 27.16 yuan per share. Shares are expected to debut on the Shenzhen bourse around Sept 10," said Wu Xianzhong, Luolai's board secretary.

The company will issue 35.1 million shares or 25.01 percent of its total equity, to raise 523.17 million yuan.

In the past few years, Luolai has become one of the fastest growing home textile companies in China, spreading its sales network to more than 1,000 stores nationwide.

Apart from Luolai, Mendale from Hunan province and Fuanna in Shenzhen are also preparing for their debut on the bourses.

"We are all very nervous. This is the final sprint of the year," said Gu Guangkai, a public relation partner of Fuanna.

Chen Shulong, securities department manager at Mendale, is waiting for a final approval from the market regulator. He said he remains "cautiously optimistic".

"The development of the industry will be enhanced greatly when top players enter the capital market," said Li Zhixian, analyst, Guotai Junan Securities.

"People will know more about home textile companies and the whole industry will improve. Good ones will gain more advantages, while smaller enterprises will be at a higher risk of failure," he said.

"The three big brands will create more nationwide competition, compared with the past when the focus was on local advantages. What's more, we may even have some mergers and acquisitions in the sector," said Wu.

Wang Wei, analyst, China Merchants Securities, said she saw no signs of change in the industry. "Small enterprises have been having difficulties for a while," she said.

"I don't see the necessity for M&As in this sector as it would in no way help the big brands. Compared with clothing, the development of the home textile sector has not been that great."

The fortunes of the lead players would also largely depend on whether they intend to stick to their investment promises after raising money through public floats, said Wang.

According to its IPO prospectus, Luolai will utilize the IPO proceeds for setting up company-owned chains, a research and development center and to expand its manufacturing base in Nantong, Jiangxi province.

Some of the capital will be used to strengthen its directly owned marketing channel in order to develop the brand. After the IPO, Luolai will open 136 new company-owned sales outlets, including three flagship and 10 anchor stores. By the end of June, it had 231 self-owned outlets.

The company also wants to reduce it dependence on sales from franchise chains, which currently account for 84 percent of the total sales.

The Chinese textile industry was hit hard during last year's financial crisis due to its high dependence on overseas markets. However, Luolai, Mendale and Fuanna suffered less because of their emphasis on the domestic market. In 2008, Luolai saw a sales growth of 20 percent, while Fuanna's sales rose 27 percent.

Source:China Daily

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