South Korean clothing retailer The Basic House is likely to seek to get its Hong
Kong subsidiary on the local stock market as part of its efforts to boost its
presence in China, a report said Wednesday.
According to the report released
by Tongyang Securities Inc., the possibility of The Basic House (TBH) Global
Ltd., 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 Hong Kong subsidiary TBH Global Ltd.,
which in turn holds a 100 percent in TBH Shanghai Co.
A private equity
fund jointly created by Korea Finance Corp. 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 sales deal indicates TBH Global needs to go eventually for
the IPO, as a put option attached to the fund's stake purchase, which is
exercisable if TBH Global does not go public, will be burdensome for The Basic
House, the Tonyang 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 TBH Global stake will decrease from 95 percent to 89.2 percent,
with the Korea Finance-KDB Capital fund owning some 6 percent.
The
Basic House plans to spend the US$31 million in cash from the sale of the TBH
Global stake and new shares to establish logistics centers in China.
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