TPG, GIC recues Li Ning with $119m convertible bonds

In contrast to the growing purchasing power among Chinese consumers, the sportswear chain has been struggling to maintain its sales amid tough competition from both local and international brands. Meanwhile, the company is projecting a drop of 7-8 percentage points in its profit margin for 2011, compared to 11.7% in 2010, largely due to sluggish new order growth and inventory problems.

To rescue the business, Li Ning said in a statement on Thursday that TPG has agreed to subscribe for RMB561 million of convertible bonds from the Company while GIC has taken another RMB189 million.

The five-year convertible bond will bear an annual interest rate of 4%. If fully converted, TPG would get 89 million new shares to GIC's 30 million, each at a conversion price of HK$7.74 per share. In addition, TPG will also purchase 53 million ordinary shares at HK$6.60 per share from the company's chairman and founder, Li Ning.

Assuming the bonds are fully converted, TPG and GIC will hold stakes of 12% and 8%, respectively, in the company, while Li Ning will remain the single largest shareholder. In addition, TPG is entitled to nominate two non-executive directors to Li Ning's board of directors.

The funding will be used for brand development, investment into sports sponsorships, product research and the roll-out of sixth-generation stores.

Commenting on the deal, Li Ning said the introduction of TPG into its board would further empower the group's strategies. "I sincerely hope that our management will fully tap into TPG's expertise and resources, in order to effectively drive the successful transformation of the group for our long term and stable development."

This was not TPG's first sportswear investment in the mainland. Back in 2010, the US buyout firm joined Partners Group and ARC China Holdings, to invest some $45 million in China Vogue Casualwear, a casual sportswear local company under the Sisulan brand.

"Li Ning is one of the early and most iconic brands in China," said Stephen Peel, managing partner of TPG Asia. "We are confident that the depth of expertise TPG has in this sector can help Li Ning develop further its business and brand in the fast growing China market."

The announcement prompted the company's share price to Compared with its 52-week high of HK$16.57, Li Ning's share once plunged to jump 11% to HK$7.46 during morning trading on January 20.

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• Topics
• Consumer
• Greater China
• Investments
• TPG Capital
• GIC Private
• China
• Consumer