Li Ning on fund raising plan

China’s sportswear company Li Ning plans to to raise approximately HK$1.87 billion (US$241 million) by way of an open offer of convertible securities to fund its transformation plan and provide general working capital.

Under the open offer, each convertible security in the principal amount of HK$3.50 is offered to qualifying shareholders for every two existing shares, said the company.

Viva China Holdings, TPG and GIC, who are the company’s existing shareholders and/or bondholders, have committed to subscribe to the convertible securities based on their assured entitlements in the open offer.

In addition,Viva China and TPG will underwrite 60 per cent and 40 per cent, respectively, of all the convertible securities not taken up by other shareholders.

“The additional capital to be raised through the open offer and continued support from its key stakeholders will ensure a stable platform while we work to restore the group to sustainable growth and profitability in the long-term and step into a new phase of our development,” said founder and executive chairman Li Ning.

Over-expansion in China’s sporting goods industry has caused the building up of inventory for channel partners, which has adversely affected store productivity and profitability and led to deteriorating financial positions.

Over the past two years, problems in the company’s sales channels have started to gradually impact its financial position. Furthermore, its debt level may begin to impact management’s ability to make optimal decisions including investments into operations.

When the situation deteriorated further in 2012, management acted quickly by implementing a comprehensive “Transformation Plan” in July 2012. As part of the plan, the company has introduced strong additions to the management team who have in turn put in place a new vision and implemented initiatives on all fronts including marketing, product/merchandising, sales channels, cost savings and cash flow management, and building the foundation of an industry-leading platform.

Li Ning also announced a key component of the Transformation plan – a one-time “Channel Revival Plan” – in December 2012, to accelerate inventory clearance process and enhance sales channel profitability.

As previously announced, the costs associated with the “Channel Revival Plan” will be mostly non-cash and take on the form of trade credits. A key part of it is replenishing channels with new inventories with more rationalised SKUs, improved pricing strategy, broader and more targeted coverage of key demographics and a sports marketing strategy highly focused on the core market, products and sports, which the management believes will start generating healthy performance in the channels.

The board considers that the open offer is in the interests of both the company and its shareholders as it provides an equitable means for the qualifying shareholders to participate in the future development and the opportunity to maintain their respective shareholding interests.

GB

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