Swimwear and casualwear manufacturer Tack Fat Group International has raised its stake in United States teen fashion brand Mudd to 36 per cent from 5 per cent for US$53 million. Under the deal announced yesterday, the Hong Kong-listed company has a two-year option to increase that stake to 51 per cent for a further US$25.65 million. To finance the investment, Tack Fat will issue US$30 million of five-year convertible notes, which will raise its gearing ratio to 63 per cent from 55.4 per cent. 'With this investment, it is easier for us to control the business. We can secure more orders,' said Tack Fat executive director Norman Ho Yik-kin. In May, the firm paid HK$26 million for 5 per cent of Mudd and struck a deal to provide exclusive manufacturing services for the US firm's products for five years. Tack Fat will manufacture 15 per cent of Mudd's products while outsourcing and managing the rest. This would rise to 20 per cent or more next year, Mr Ho said. Mudd targets young consumers with swimwear, casual wear, sunglasses and shoes, using marketing means such as music channel MTV. Mudd was the 10th most popular jeans brand in the US with sales of US$500 million last year. The US accounts for 66 per cent of Tack Fat's sales. Mudd managing director Conrad Lung said the firm hoped to launch its brand in Asia. 'We very much want to go into China. China is a difficult market. We tried to go there a year ago but didn't do well.' Tack Fat, whose shares were suspended yesterday, is primarily a manufacturer with little retail expertise, so it was incurring risks in holding such a large stake in Mudd, warned an analyst with SBI E2-Capital. With this deal, Tack Fat will own 36 per cent of Mudd, while Mr Lung will hold 27 per cent and the Mudd founders 36 per cent. Mudd director Don Jackson said he hoped Tack Fat would lower the US firm's manufacturing and sourcing costs. Last year, the US imposed quotas on jeans, which hurt Mudd as most of its manufacturing is done in China. Tack Fat, by having factories in Cambodia and China, and sourcing garments from Asia, would improve Mudd's supply chain problems, Mr Jackson said. The quota disruption and increased production costs caused Mudd's revenue to decline 10 per cent to US$190 million last year and pre-tax profit to fall 29 per cent to $33.7 million. For the coming fiscal year, Tack Fat will be able to book Mudd's entire revenue, which would roughly triple the Hong Kong firm's turnover, Tack Fat company secretary Chu Kin-wah said. For the year to March, Tack Fat's turnover rose 12 per cent to HK$989 million, while profit attributable to shareholders rose 16 per cent to $121 million. It would expand production capacity by about 20 per cent next year, Mr Ho said. 'There will be more to come of Hong Kong companies buying international brands,' said Peter Shay, managing director of MMG Asia, an investment banking and consulting firm.