Li Ning stumbles over costly makeover plan

Sportswear firm to raise HK$1.87b through issue of convertible securities to help revive brand

PUBLISHED : Friday, 25 January, 2013, 11:11am
UPDATED : Saturday, 26 January, 2013, 4:51am

Li Ning Company tumbled yesterday after the sportswear retailer - struggling with weak sales and high inventory - announced it would raise HK$1.87 billion by issuing convertible securities to revive the brand.

The stock fell 16.2 per cent before closing down 15 per cent at HK$5.30 as investors found the company's makeover plan far more costly than they had anticipated.

"The move is quite unexpected as it's only been about a year since it raised money from major shareholders TPG and GIC," said Steve Chow, the research associate director of SW Kingsway Financial Services.

"It shows the company is in urgent need of money to support its revamp plan."

The management held an analysts' conference yesterday, saying the company's own capital is inadequate to support the revamp.

Li Ning, backed by Singapore sovereign fund GIC and US private equity fund TPG Capital, plans to offer one convertible security for two shares, according to a filing with the Hong Kong stock exchange yesterday.

Each security can be converted into one share at HK$3.50, a 43.6 per cent discount to the stock's Thursday closing price of HK$6.21. The stock was suspended on Thursday for the announcement.

Up to HK$1.87 billion would be raised through the security. The money would be invested in branding, product development, supply chain and opening new stores in an attempt to create a more retail-and-consumer-oriented business model, it said.

The company is also seeking to "optimise the capital structure" and replenish general working capital.

Viva China, a property development company also under owner Li Ning's control, will underwrite 60 per cent of the securities, with TPG underwriting the rest.

Li Ning, a rival of Nike, Adidas and local player Anta Sports Products, warned in December that it would record a substantial loss for 2012.

A year ago, the Beijing-based company sold 750 million yuan (HK$925.76 million) of convertible bonds to TPG Capital and GIC to fund store expansion and product development.

Founder Li Ning, a former Olympic gymnast, and TPG partner Jin-Goon Kim jointly handle daily operations after the chief financial officer and the chief executive resigned last year.

In July the retailer launched a plan to rebuild the brand and identified an overhaul of its distribution channels as the first step. That is estimated to cost the company up to HK$1.8 billion.

Kingsway's Chow said other local players in the industry were adopting a wait-and-see attitude about Li Ning's transformation plan.

"They are less likely to follow Li Ning to raise money from the capital market for the moment. They may think it's too risky," Chow said.