TPG-backed retailer Li Ning seeks to raise $218m
Struggling Chinese sportswear retailer Li Ning plans to raise up to HK$1.69 billion ($218 million) through a share offering, with existing investors TPG Capital, Milestone Capital and GIC Private all agreeing to participate.
Investors can subscribe on the basis of five securities for every 12 existing ordinary shares at a price of HK$2.60 apiece, according to a regulatory filing. Between 583.7 million and 651.9 million securities will be sold, or 29.41% of Li Ning's total issued share capital post-offering.
The pricing represents a 25% discount to the last close. Li Ning's stock is currently trading at HK$3.05 and has fallen nearly 50% since the start of the year.
TPG, Milestone, GIC and Viva China - a vehicle that represents the interests of the company's founder and executive chairman, former Chinese gymnast Li Ning - are underwriting the offer.
TPG currently holds a 3.78% stake in Li Ning plus some convertible securities. If the offering is fully subscribed and these securities - plus some held by Viva China - are converted, it will stay on 3.78%; if no shareholders take up their entitlements, it will have 8.68%.
GIC and Milestone own 4.19% and 6.78%, respectively. Their holdings will remain the same if the offer is fully subscribed and TPG and Viva China convert their securities. If no shareholders take up their entitlements, GIC will still have 4.19% and Milestone will have 8.54%.
Viva China owns 19.01% of the company. Its holding will rise to 27.89% if all the securities are fully converted and no shareholders take up their entitlements.
Li Ning unveiled a transformation blueprint in July 2012 that involved focusing on the China market, the Li Ning brand, and the core sports categories of basketball, badminton, running, training and lifestyle. New products have been developed and the distribution network has been optimized.
The next phase - for which the new capital is required - is expected to see the company turn stability into growth.
Li Ning's initial problems were blamed on a failed attempt to reposition its brand. It attempted to move up market and challenge Nike and Adidas, hiking prices and focusing more on first-tier cities. Not only did it lost out to these two global giants, but local rivals such as Anta and Peak Sports grabbed market share in the second- and third-tier markets.
On top of this, the rise of e-commerce has presented a challenge to all predominantly bricks-and-mortar retailers in China.
Li Ning reported revenue of RMB3.13 billion ($503 million) for the first half of 2014, up from RMB2.91 billion for the same period of last year. However, losses widened to RMB562.6 million from RMB162.1 million. The company said its platform overhead costs relative to revenue scale continued to generate negative operating cash flow.
TPG and GIC first invested in January 2012 in order to support a turnaround of the business. They have participated in subsequent security offerings.
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