* Li Ning shares plunge 16 pct on inventory fears
* GIC, TPG and Viva China will subscribe to offer
* Rivals Anta, 361 Degrees, Xtep, Peak Sport also fall
By Donny Kwok
HONG KONG, Jan 25 Struggling Chinese sportswear
brand Li Ning Co Ltd, which is backed private equity
fund TPG Capital, said on Friday it plans to raise up to HK$1.87
billion ($241 million) through the sale of convertible
securities, as it seeks to revive its brand in an industry
plagued with bloated inventories.
Shares in the company slid as much as 16 percent, before
they trimmed losses to close 14.7 percent down, their biggest
drop since July 2011, as investors feared the fundraising, part
of which would be used to buy back outdated stock, signalled
that Li Ning still had a way to go to bring down inventories.
China's economic slowdown has resulted in inflated stock
levels and depressed earnings for retailers including local and
foreign sportswear players - a sharp reversal of fortune after
an expansion blitz that followed the 2008 Beijing Olympics.
"I am very bearish and very gloomy on the sports apparel
sector in 2013 in China," said Shaun Rein, managing director at
China Market Research Group. "It's going to be 2015 before we
can see any kind of recovery."
Shares in Li Ning, which has a market value of $846 million,
fell 5.3 percent on Wednesday prior to the fund-raising
announcement after a Hong Kong media report said the sportswear
sector still faced an inventory overhang. Its shares had risen
more than 20 percent in January up to then.
The stock closed at HK$5.30, vastly underperfoming a 0.08
percent drop in the benchmark Hang Seng Index.
"Li Ning is a role model among the rivals and is a showcase
of the industry. The latest fundraising plan suggested that
players have to put in a lot more effort to deal with this tough
inventory issue," said Steve Chow, analyst at Sunwah Kingsway
Research. "That erases hope of a recovery of the sector - at
least it won't happen in the short run."
Selling pressure swept across the sector, with domestic
rivals Anta Sports Products Ltd and Xtep International
Holdings Ltd each down 4.4 percent.
Peak Sport Products Co Ltd fell 3.9 percent, 361
Degrees International Ltd dropped 3.6 percent and
China Dongxiang (Group) Co Ltd slid 3.2 percent.
"Li Ning's fundraising move at a time when we still see no
sign of improvement in its business and inventory level add more
worry for investors toward the company and the industry," said
Steven Leung, a sales director at UOB Kay Hian.
In December, Li Ning, which is also backed by Singapore
sovereign fund GIC, warned it would post a substantial
2012 loss due to as much as $288 million in expenses under a
plan to buy back inventory from distributors.
"Their market share is collapsing in China," China Market
Research Group's Rein said, adding that Li Ning was losing out
to Nike Inc and would also cede market share to 361 and
Xtep. "They no longer look (likely) to become a global player
because if they don't make changes, in a year or two they won't
even be a player in China."
Li Ning underwent a series of management changes in 2012 and
is now run by TPG managing director Kim Jin-Goon and former
Olympic gymnast Li Ning.
Each convertible security, which is convertible into one
share at HK$3.50 each, will be offered to shareholders for every
two existing shares held.
Li Ning, which competes with foreign players such as Nike,
also said in its filing that GIC, TPG Capital and Viva China
Holdings Ltd would subscribe to the offer.
"We are at a critical point in executing our plans and
transforming our business," company founder Li Ning said in a
"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," Li said.
Li said in October he was selling a stake in China's
best-known sportswear group to his talent management firm Viva
China for HK$1.36 billion ($175 million), as the sports sector
grapples with an economic slowdown and fierce competition.
The Li family currently holds 25.23 percent of the company,
while TPG and GIC each own about 5 percent with the ability to
raise that to a combined holding of about 20 percent over the
next five years by converting bonds into shares.
"After TPG invested in it, I said they have a 3 to 6-month
time frame to show the market they are changing things, and they
haven't changed it," Rein said. "I don't think TPG is as good as
they think they are at managing consumer brands."