Li & Fung seeks cash to fund acquisitions
Growth-challenged trade exporter Li & Fung is seeking to raise fresh funds by selling bonds to fund acquisitions.
The 104-year-old firm, which sources consumer goods for retailers such as Wal-Mart Stores, yesterday was selling 10-year US dollar-denominated bonds, which analysts estimated would raise about US$500 million.
They said the fund-raising exercise had lifted the curtain on several acquisitions in the pipeline as the group sought to meet its US$1 billion core operating profit target and turnover of US$20 billion by year's end.
Li & Fung directors conceded in March that it would be a challenge to reach its goal because the global financial crisis had left it last year with a core operating profit of about US$513 million, about half of this year's target, and turnover had slipped for the first time in decades, by 6 per cent to US$13.39 billion.
'It is racing against time, with about seven months left,' an analyst at a European brokerage said. 'It has to make at least two large-sized earnings-accretive deals in the coming months to meet the target.'
Li & Fung declined to comment.
The bonds were rated A-minus by Standard & Poor's and A3 by Moody's Investors Service. Analysts said the bond issue would boost Li & Fung's cash resources, which stood at HK$5.8 billion at the end of last year, with annual operating cash flow of HK$4 billion. News of the bond sale sent shares HK$1.60, or 4.1 per cent, lower at HK$37.40 yesterday. It is the company's second bond offer in three years. The last sale was in 2007, raising US$500 million for acquisitions.
An analyst said upcoming acquisitions were likely to be sourcing deals such as health care and beauty products, a fast-growing area to which Li & Fung is underexposed.
She said consumer spending in the firm's core market, the United States, was recovering slowly while production and operating costs of factories in China were rising sharply. A key threat to Li & Fung was an expected yuan appreciation.
In January, Li & Fung signed a six-year agreement to source consumer goods for Wal-Mart and its Sam's Club chain stores internationally for at least US$2 billion in the first year.
Last year, Li & Fung sealed four big deals in the US, sourcing apparel and footwear for brands Liz Claiborne, Wolverine Worldwide, Talbots and Hudson's Bay Trade. Its bond offer was handled by Citigroup Global Markets, HSBC and JP Morgan.