Li & Fung Ltd (利豐), the biggest supplier of clothes and toys to Wal-Mart Stores Inc and Target Corp, plans to raise HK$2.7 billion (US$348 million) selling new shares to fund acquisitions.
The second-biggest gainer on the benchmark Hang Seng Index this year will sell the shares at HK$22.55 each, Li & Fung said in a statement to Hong Kong’s stock exchange yesterday. The sale is at a 6 percent discount to Monday’s closing price and led to a stock downgrade at UBS AG.
The transaction may be the largest additional share offering by a Hong Kong-listed company in the city in almost a year, and comes as the MSCI World Index erased its loss this year. Li & Fung is signing outsourcing deals and buying rivals, last month completing its agreement to supply Liz Claiborne Inc, whose brands include Kate Spade and Juicy Coutoure.
The share sale “will dilute earnings by roughly 3.5 percent,” according to a note to clients yesterday from UBS analysts Spencer Leung and Erica Poon Werkun. “Our recent conversations with industry sources suggest that US sources will not spend at the level previously seen,” said the analysts, who downgraded Li & Fung’s stock to “sell” from “neutral.”
Li & Fung made 62 percent of its HK$110.7 billion sales last year in the US, with 30 percent coming from Europe.
Li & Fung fell 7.7 percent to HK$22.15 at 10:50am in Hong Kong, the most in three weeks. That cut the stock’s gain this year to 67 percent, compared with a 14.5 percent climb for the benchmark Hang Seng Index.
The funds raised will be used to finance potential acquisitions and strengthen Li & Fung’s balance sheet, the Hong Kong-based company said. It will sell 120.3 million shares, raising a total of HK$2.7 billion, with net proceeds at HK$2.68 billion, the company said.
The sale may be the biggest additional share offering by a Hong Kong-listed company since Champion Real Estate Investment Trust (冠君產業信託) raised HK$2.96 billion last May, according to data compiled by Bloomberg.
The MSCI World Index of 23 developed markets yesterday rose 3 percent, while the MSCI Asia Pacific Index has climbed 33 percent since March 9, erasing earlier losses this year and making it easier for companies to raise capital. Bluescope Steel Ltd, Australia’s biggest maker of the metal, may raise as much as A$2.7 billion (US$2 billion) from a loan and a share sale to refinance debt.
Macquarie Group Ltd on May 1 raised A$540 million selling stock at a 19 percent discount and announced a share purchase plan for ordinary shareholders, which may raise as much as A$200 million, according to a person with knowledge of the sale. The firm is also raising about A$500 million to cover staff bonuses, subject to shareholder approval, it said on Friday.
The shares being sold represent 3.2 percent of Li & Fung’s total stock as enlarged by the sale. They will be sold to at least six individual or institutional investors.
In February, Li & Fung agreed to pay as much as US$83 million for Liz Claiborne’s sourcing business. It announced at least US$385 million in acquisitions for last year, including Van Zeeland Inc, a handbag importer in New York, for US$330 million.
The firm operates a sourcing network of about 10,000 suppliers in China, Southeast Asia and other regions and has offices in 40 markets. It also supplies Inditex SA’s Zara chain and Gap Inc.
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