Clothing retailer sees HK listing as way to China

HONG KONG - Korean clothing retailer The Basic House is expected to attempt listing its Hong Kong subsidiary on the local bourse as part of its efforts to boost its presence in China, a report said yesterday.

According to Tongyang Securities, the possibility of The Basic House (TBH) Global, the retailer’s Hong Kong subsidiary, going for an initial public offering (IPO) has increased due to the scheduled issuance of new shares.

The Basic House holds a 95 percent stake in its Hong Kong subsidiary, which in turn holds a 100 percent stake in TBH Shanghai.

A private equity fund jointly created by Korea Finance Corp. (KoFC) and KDB Capital is set to buy a 3 percent stake in TBH Global from The Basic House next Wednesday. The fund will also participate in a third-party placement of TBH Global’s new shares.

The deal indicates that TBH Global will eventually go for the IPO due to a put option attached to the fund’s stake purchase that is exercisable if it does not go public; this would be burdensome for The Basic House, the Tongyang report said.

A put option is a contract between two parties to sell an asset at a specified price by a predetermined date.

“The put option allows the buyer to sell the stake at a compound annual interest rate of 8 percent if TBH Global does not go public within three years,” said Han Sang-hwa, an analyst at Tongyang Securities.

After the sales, the Basic House’s stake in TBH Global will decrease from 95 percent to 89.2 percent, with the KoFC-KDB Capital fund owning 6 percent. Yonhap