Li Ning, China's biggest sportswear manufacturer, is seeking to raise HK$10.4 billion (US$1.35 billion) from a stock placement, 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 outside investors, to fund an overseas expansion and enhance its brands and supply chain system among others, according to a Hong Kong stock exchange filing on Thursday.
It will also make a separate top-up placement of the same amount of shares at the same price to its major shareholder, Viva China, to restore its shareholding in the company. The price is about an 8 per cent discount to the closing level on Wednesday.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
Shares of the athletic apparel producer slumped 8.1 per cent in Hong Kong, the most in three months, while the broader market slipped 0.4 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 downgraded Li Ning and its peers Anta Sports Products and Xtep International to underperform, according to Bloomberg data. 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.
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.
More from South China Morning Post:
- Xinjiang cotton spawns new controversy with 30-fold jump in online prices of Li Ning, Anta footwear as market crackdown looms
- Li Ning shares hit new high as sales surge amid Chinese boycott of Western sports brands over Xinjiang cotton row
- Li Ning pays £51 million for Clarks as Chinese companies keep up their global shopping spree for marquee brands