Li Ning seeks US$1.3 billion in fresh capital to fund overseas expansion as growth at home cools

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Li Ning, China’s biggest sportswear manufacturer, is seeking to raise HK$10.4 billion (US$1.35 billion) from a stock placement involving its major owner, triggering a sell-off at the same time after brokerage KGI Securities downgraded key players in the sector.

The company proposed to issue 120 million new shares at HK$87.50 each to its major shareholder Viva China under a top-up stock issue, according to a Hong Kong stock exchange filing on Thursday. The proceeds will help fund an overseas expansion and enhance its brands and supply chain system, it added.

The top-up issue will be done at the same time Viva China places out the same number of its shares to outside investors at the same price. The price is about an 8 per cent discount to the stock’s closing level on Wednesday.

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Shares of the athletic apparel producer slumped 8.2 per cent to HK$87.40 in Hong Kong, the most in three months, while the broader market slipped 0.3 per cent amid concerns about weak earnings outlook.

The fundraising will also help strengthen the group’s financial position and to broaden Li Ning’s shareholder base to facilitate its future growth, as well as to increase the liquidity of Li Ning shares, the company added in the filing.

The stock placement came as KGI Securities’ analyst Samuel Chua downgraded Li Ning and its mainland peers Anta Sports Products and Xtep International to underperform, citing slowing sales in the third quarter. Li Ning’s sales grew by half the pace in the second quarter, as did Anta’s business. China’s economic growth slowed to 4.9 per cent last quarter as the manufacturing engine faltered.

With China’s huge population base, retail consumption remains a key driver of economic growth, accounting for 62 per cent of gross domestic product in the first half. Li Ning’s planned overseas expansion will test whether its brands would also enjoy the same success at home.

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“We will not put too much value on this [expansion plan] at this moment,” Chua of KGI said by phone. “They will have to do a lot of marketing in these countries and will take years before they get recognition.”

Li Ning’s net profit almost tripled to 1.96 billion yuan (US$306 million) in the first half as revenues grew by 65 per cent. Its same-store sales rose by more than a fifth in the September quarter, despite cutting its points of sales to 5,803 from 5,912 at the start of the year. Net profit rose by 13 per cent to 1.7 billion yuan in 2020.

The company, which has sponsored the likes of NBA basketball superstars Shaquille O’Neal and Dwyane Wade, also manufactures and sells various sports products that are either owned by the company or licensed to the group, including Aigle, a joint venture company with the French sports apparel maker.

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