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SBD Global/January 28, 2013/Finance

Li Ning Shares Drop Following Announcement Of $241M Fundrasing Plan

Chinese sportswear company Li Ning "sent its shares tumbling by revealing it needed to raise more money to complete a restructuring plan," according to Patti Waldmeir of the FINANCIAL TIMES. Its share price sank 14.7% on Friday after the company said that it plans to issue convertible securities worth up to HK$1.87B ($241M) to provide capital for restructuring and business development, "as it tries to reverse a two-year slide in its performance." The securities are convertible into one share at HK$3.50 ($0.45) each and "will be offered to shareholders for every two existing shares held." Shanghai-based China Market Research Managing Dir Shaun Rein said, "They are in a lot of trouble, and this latest news shows the situation is even worse than we thought. They may not be able to continue as a standalone concern in a year or two" (FINANCIAL TIMES, 1/25).

TAKING ITS TOLL: On the WALL STREET JOURNAL's blog Asia Business, Laurie Burkitt noted the plan "calls for three of Li Ning's major investors" -- U.S. buyout firm TPG, sports talent firm Viva China and Government of Singapore Investment Corp. -- to buy a combined total of HK$627.5M ($80.9M) in the securities. Discounts intended to clear its shelves "have taken a toll on the brand." Li Ning and TPG "plan to revive it with new products," such as lightweight running gear. Additionally, Li Ning Exec Dir & Vice Chair Jin-Goon Kim said that the company is "planning marketing and sponsorship promotions, as well as product innovations for basketball, running and badminton, which are among the most popular of its apparel lines in China" (WSJ, 1/25).

INVENTORY ISSUES: REUTERS' Donny Kwok noted shares in Li Ning, which have a market value of $846M, fell 53% on Wednesday prior to the fundraising announcement "after a Hong Kong media report said the sportswear sector still faced an inventory overhang." Its shares had risen more than 20% in January. Sunwah Kingsway Research analyst Steve Chow said, "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. That erases hope of a recovery of the sector -- at least it won't happen in the short run" (REUTERS, 1/25).
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