Prada Ipo or Not

In: Business and Management

Submitted By lesliepattinson
Words 1491
Pages 6
Problem: Prada requires a significant amount of capital both to re-finance debt that is maturing in the next six to twelve months and to finance its intended growth into the Asian (especially Chinese) markets

Alternative Solutions:
#1) IPO: (Initial Public Offering) Cons: High tax and pricing "We received little demand from our (retail) clients for the (Prada) shares. It might be the 12.5 percent tax that scared them away and the pricing itself was expensive when it compared with its peers," said Alfred Chan, chief dealer at Cheer Pearl Investment. "Unlike institutions, our retail clients hold the shares for a much shorter term," he added.

"Consumers are willing to pay a very high premium chasing after brands, but it's not the case for investors. Investors are concerned about reasonable valuation and pricing" -Conita Hung, head of equity - research of Delta Asia Financial.

Prada warned in its IPO prospectus that Hong Kong residents would be liable to a withholding tax on dividends on top of the capital gains tax. Hong Kong is known for its low-tax regime, with no capital gains taxes, no sales tax or value added tax (VAT) and has among the smallest income taxes on salaries.

Apart from the tax issues, retail appetite for Prada may have been reduced due to volatile global markets in recent weeks

“There’s going to be quite a lot of pressure on Prada,” said Espinasse, the author of IPO: A Global Guide. “The fact that retail investors haven’t gone for it is going to be an issue.”
Individual investor demand for Prada shares suffered because Hong Kong and Italy have not signed a double taxation agreement. Hong Kong investors will be subject to a capital gains tax of 12.5 percent, and a 27 percent tax on dividends, according to its IPO prospectus. The dividend tax…...

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