With This Initial Public Offering, There's a Lot to Drink In
Hong Kong Stock Pitch Explains Scene: Jagerbombs Sell Big; Club Hopping Poses a Risk
Updated Jan. 21, 2014 10:58 p.m. ET
Gold toilet at Magnum Club in Hong Kong
Isabella Steger/The Wall Street Journal
When a company is going public, it is important that prospective investors understand its business.
Magnum,
a Hong Kong nightclub, is launching an initial public offering on
Thursday, and its prospectus explains the following: how a nightclub
works, the popularity of the Jagerbomb and that, sometimes, people drink
while dancing.
"Clubbing is a popular
night time activity which has evolved from the discotheques of the 1970s
into a modern form of social gathering with lively music, elaborate
lighting and a dance floor, supplemented by both alcoholic and
non-alcoholic beverages," the IPO-prospectus overview begins.
And
it describes the scene: "The aura and atmosphere of the modern clubbing
scene is filled with images of people moving in unison to the beat of
synthesised remixed dance and electronic music spun out by a DJ perched
upon an elevated stage."
Late on a
Saturday night, the line to get into the Magnum Club can sometimes
stretch down the block. As busy as Magnum gets, far more people want to
buy into the company's IPO than to dance amid its flashing walls and use
its diamanté-encrusted toilets.
Investors
placed orders for over 3,000 times the number of shares available in
the HK$126 million ($16 million) IPO, making it one of the hottest stock
offerings in the city's history. The prospective buyers are betting
that the stock of the nightclub chain will skyrocket when it starts
trading on Thursday.
As with any coveted IPO, brokers give
their best customers the first crack at the shares so they can earn
quick profits if the stock pops when trading starts. In Hong Kong, that
would include an army of mom and pop stock traders, many of whom spend
their days hanging around brokerage offices and some who have likely
gone to bed before Magnum gets hopping.
"Lots of my clients want to get their hands on Magnum's shares," said Arthur Lui, senior sales manager at Prudential Brokerage.
Peter
Wong, 38 years old, works at a brokerage and visits the Magnum club
twice a week. "I would actually be interested in the IPO, but it's very
hard to get into," he said as he poured from a HK$5000 ($645) bottle of
Belvedere vodka Saturday night at Magnum.
But
he wouldn't stay for the long haul. "I would dump the shares quickly,"
Mr. Wong said. One reason: "People are fickle and will just move on to
whatever the hottest new club is."
The
prospectus acknowledges that patrons might not hang around all night.
"There has been a trend of 'club-hopping' developing in Hong Kong in
recent years which means customers have the tendency to visit multiple
clubs in one night," the document continues. "Customers may choose a
Club based on their mood on a particular evening."
The
IPO is tiny by most standards. The club's owner, Magnum Entertainment
Group Holdings Ltd., runs three nightclubs within blocks of one another
in Lan Kwai Fong, a densely packed, occasionally rowdy neighborhood of
bars and restaurants just up the hill from Central, Hong Kong's main
business district.
Magnum tries to
differentiate its three clubs: Magnum, Beijing Club and Billion Club.
The Billion Club boasts life-size bronze bulls on its outdoor terrace
and Magnum has a crystal-studded DJ booth. Billion and Magnum have
diamanté-decorated toilets. Proceeds raised from the IPO will go to
opening another club, Zentral, this year.
The nightclub company and its bankers and lawyers wouldn't talk ahead of the IPO.
Magnum topped the record set by
Milan Station Holdings Ltd.
1150.HK -13.64%
's IPO in 2011, when investors placed orders for more than 2,000
times the number of shares available. Milan Station occupies a unique
niche in brand-obsessed Hong Kong, selling secondhand designer handbags
for prices ranging from a few hundred to a few thousand dollars. Hong
Kong's individual investors typically flock to small IPOs like these,
looking to make a quick buck by selling the shares once the company
starts trading.
Magnum makes most of its
money selling drinks, "generally known as alcoholic beverage served by
glass and prepared by bartenders mixing different alcohol and
ingredients," according to the prospectus.
The
drinking habits of Magnum's patrons have changed recently. According to
the IPO prospectus, Magnum's clients have widely divergent and rapidly
changing tastes. The club's highest-grossing drink is Moët & Chandon
Magnum Champagne.
But the most popular
is the Jagerbomb, typically defined as a shot of Jagermeister—a German
liqueur made from 56 herbs, roots and spices that tastes heavily of
anise—dropped into a glass of beer or energy drink. The Jagerbomb
overtook a Smirnoff vodka that was the most popular drink for the
previous three fiscal years, according to the prospectus.
Magnum's
IPO is getting an unlikely boost. While Hong Kong residents aren't
known to be big drinkers, the prospectus gives credit for the company's
growth to a 50% surge in expatriate professionals in Hong Kong after the
financial crisis.
"It is believed that
this leads the Hong Kong alcohol consumption and night entertainment
scene closer to the consumption patterns observed in western countries,"
the document says.
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