Dec 1, 2011
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Coach makes weak HK debut, bets on China growth

Dec 1, 2011

HONG KONG - U.S. luxury handbag maker Coach Inc dropped in its trading debut in Hong Kong on Thursday as thin volume in its depositary receipts limited their appeal to local investors.

The company's Hong Kong depositary receipts (HDR), each representing one tenth of Coach's common stock, closed at HK$48.50.

Coach Inc
Gwyneth Paltrow for Coach FW 2011 ad campaign

Coach said in a securities filing that its shares closed the previous session at the equivalent of HK$487.45, putting the value of the HDRs at HK$48.745 and Thursday's decline at 0.5 percent. By comparison, the Hang Seng Index surged 5.6 percent and Coach's peer Prada SpA gained 6.9 percent.

Founded in 1941 in a workshop in New York City, Coach became the first company incorporated in the United States to list in Hong Kong, following in the footsteps of another luxury giant, Prada SpA, which was the first Italian company to list in the former British colony.

Unlike Prada, which raised $2.5 billion in June, Coach issued no new shares and raised no funds, choosing a rare method called "listing by introduction" that some bankers have dubbed expensive marketing.

Five other companies have listed in Hong Kong by way of introduction so far in 2011 and casino operator Melco Crown Entertainment Ltd will pursue the same path with a Dec. 7 debut, but the lack of liquidity on those shares have limited their appeal to investors.

Coach Chief Executive Lew Frankfort called the listing "a momentous day" for the company, but acknowledged that it would take time for the maker of handbags, wallets, belts and other leather goods to lure investors in Hong Kong.

"Trading is light, but we expect it to intensify as investors become more aware that they could purchase Coach on the Hong Kong exchange," Frankfort told a news conference.

Like Prada, Chow Tai Fook Jewellery Group Ltd and global brands such as Burberry Group Plc and LVMH Moët Hennessy Louis Vuitton SA, Coach is counting on insatiable demand in Greater China for luxury goods to fuel future growth.

According to consulting firm McKinsey & Co, China will account for 20 percent of the global luxury market by 2015, with spending in the country nearly tripling to $27 billion by that year from around $10 billion in 2009.

Coach was present in 71 locations in China at the end of October and plans to open about 30 new locations in the country in fiscal 2012, which ends in July.

"It is quite obvious that luxury companies are looking at expansion in Greater China so they try to list in Hong Kong to help raise their brand recognition, marketing," said Carrie Chan, analyst at ICBC International Research Ltd in Hong Kong.

By Elzio Barreto

(Additional reporting by Farah Master; Editing by Chris Lewis)

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