Li Ning Looks to Raise Cash
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By LAURIE BURKITT
http://online.wsj.com/article/SB10001424127887323539804578263462103912112.html
BEIJING—Li Ning Co.'s 2331.HK -14.65% lead investors could inject up to 1.87 billion Hong Kong dollars (US$241 million) into the Chinese sportswear company under a fund-raising deal intended to help freshen the brand and revive sales.But the plan could result in the issuance of new shares that would increase the total outstanding by 50% and leave the company's two largest investors with their stakes considerably enlarged. Li Ning shares fell about 15% in Hong Kong trading Friday, following announcement of the plan in a filing with the Hong Kong stock exchange.
A Li Ning sportswear store in
Huaibei; the company aims to raise up to $241 million, part of a plan to
restore the brand's fortunes.
"We believe the platform is making progress and the time is right to make further investments," he said.
Prior to the announcement, analysts expressed concern about cash flow. In a Wednesday report, HSBC HSBA.LN +0.77% analysts said they would "caution against the China sporting goods sector in general, and Li Ning in particular, as value traps with little fundamental support for their current trading levels."
Mr. Kim said the fund-raising plan doesn't reflect a cash problem. "Cash flow and this financing are not directly related," he said. "We're doing this to invest in the company and our future."
Li Ning aims to raise between HK$1.85 billion and HK$1.87 billion by selling convertible securities, according to the stock-exchange filing. The plan calls for three of Li Ning's major investors—TPG, sports talent firm Viva China Holdings Ltd. 8032.HK -4.26% and Government of Singapore Investment Corp.—to buy a combined total of HK$627.5 million in the securities. Viva China is controlled by Li Ning, the former Chinese gymnast who is Li Ning Co.'s founder and chief executive, as well as namesake.
Existing shareholders would have the right to buy one convertible security for every two shares they hold, at a discount price of HK$3.50. (45 U.S. cents); Friday's closing price was HK$5.30. The deal calls for TPG and Viva to buy any left unsold. If there's no interest from other investors, that could raise Viva's effective stake to more than a third of the company from the current 25%. TPG would own nearly 14% of shares if converted, up from 5% currently.
Mr. Kim said the company believes the deal is the best option it can offer investors, giving them an opportunity to prevent dilution of their shares.
"We have been looking for the most equitable way of funding the company and supporting its future," he said. "This allows us to eliminate the problem of dilution by giving everyone opportunity to take the offer."
Problems at Li Ning can be traced to the aftermath of the Beijing Olympics of 2008, when the company anticipated greater demand for sporting goods than actually developed. Post-Olympic enthusiasm infected executives from many companies in the sportswear industry, including Nike Inc., NKE +2.86% but Li Ning has struggled with the resulting excess inventory for much longer.
Discounts intended to clear its shelves have taken a toll on the brand. Li Ning and TPG plan to revive it with new products, such as lightweight running gear.
Li Ning is planning marketing and sponsorship promotions, as well as product innovations for basketball, running and badminton, which are among the most popular of its apparel lines in China, Mr. Kim said.
The company's distributors, buried in financial problems tied to the excess apparel, have been stable, Mr. Kim said. "Distributors have already been consolidated and the ones who are left are loyal," he said.
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