Mar 16 2009

China may take stake in Richemont, LVMH

Published by at 2:46 pm under Companies,Top Stories

Rumours are flying in the Chinese media that China Investment Corporation (CIC), with reserves of $200 billion, is considering stakes in luxury goods firms such as LVMH Moet Hennessy Louis Vuitton, Richemont or PPR, reported the German business daily Handelsblatt this morning.

Apparently, equity stakes of up to 10%, or investments in convertible bonds, are being considered.

And if CIC cannot reach agreement with the managements, it might try to purchase shares on the open market. It is conservatively estimated that CIC might want to invest $100 million to $200 million in the luxury goods sector, a second source reported. 

This is what the Handelsblatt had to say:

It might sound unusual, but it is not impossible – in the past year China has already taken stakes in a row of mines and energy companies. From the perspective of a highly ambitious country, haute couture is just as attractive as trading goods. The Chinese industry consumes foreign metals, the aspiring middle class consumes Vuitton. The consulting firm Bain forecasts sales of luxury goods in 2008 of around $7.6 billion. Gucci’s China turnover climbed by 28% in the last qarter. 

At the same time, the share prices of the luxury goods concerns dropped rapidly. The price-earning ratios of  LVMH, Swatch and Bulgari now all stand one-third below their 2008 levels – for China a double temptation. Firstly, China can recover part of its investment from the consumption of its own citizens. Despite high luxury taxes in China, the country would benefit from foreign sales with a stake in a luxury goods manufacturer.

Secondly, shares in luxury goods concerns would also be another step in the direction of independence. Natural resources cannot be manufactured…theoretically, prestige can be created anywhere. China needs expert knowledge – investments in big manufacturers can help with that. 

But, what do the fashion moguls have to say about that? Traditionally, the founder families walk conservative financial ways, but their main income streams in existing markets are shrinking fast. They can benefit from the cheap capital injections and the new contacts. A big, state investor could assist luxury concerns with the Chinese planning guidelines and be an ally in the fight against trademark pirates. 

Natural resources, or stylish necktie – when it comes to the world’s biggest market for sales, there will always be good reasons for cooperating. 

Comment: I’m a cynical. As far as I’m concerned, there’s ALWAYS fire, where there’s smoke. I treat this article not as a rumour, but as leaked information, carefully selected to “soften” the markets and prepare the ground (to ensure the markets receive such investments positively when they happen).

One response so far

One Response to “China may take stake in Richemont, LVMH”

  1. adminon 17 Mar 2009 at 3:36 pm

    As with the Sasol/India story below this one, the SA media also haven’t yet picked up on this story…roughly 30 hours after it first broke in Europe.


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