This will be the companyÆs first dollar bond, rated A-/A3 and managed by Citi and HSBC. The proceeds will be used primarily for refinancing existing debt, business development and acquisitions.
The transaction has attracted high levels of interest, indicating an early appetite for the deal. The number of one-on-one meeting requests from investors has required two roadshow teams. Although bookrunners have not specified how big the transaction will be, other than saying it will be a benchmark deal, investors are expecting that Li & Fund could raise up to $500 million.
In terms of comparables, Swire PacificÆs March 2016 (5.625%) and Sun Hung KaiÆs March 2017 (5.375%) issues have been quoted as the most relevant. They were yesterday both trading at 34bp over Libor.
Li & Fung, founded in Guangzhou in 1906, is a leading trading company operating in the consumer goods market. The company coordinates and monitors the production process of its goods by providing support for product design, raw material sourcing and production management, quality control, logistics, and shipping. It does not own factories because its strategy is to be ôasset-lightö and hold as few real estate and physical infrastructure assets as possible.
Li & FungÆs network covers 70 offices in 40 countries from Southeast Asia to the Americas and Europe, with a total staff of 10,000 and a sourcing network of 10,000 suppliers. In the US market, the company achieved increases in turnover and core operating profit of 28% and 35% in 2005 and 2006 respectively. In 2006, the companyÆs Ebitda stood at HK$2.572 million, representing an Ebitda margin of 3.78%. Turnover increased by 22% from 2005. By the end of that year, Li & Fung had HK$3.3 billion of cash, and no long-term borrowings.
With no real barriers to entry, the sourcing and export trade has many small-sized players, a number of which Li & Fung has acquired in recent years. Some of these include: Inchcape Buying Services in 1995 (a major competitor), Swire Maclaine in 1998 (a trading firm sourcing high volume and labour intensive consumer goods); and Colby Group Holdings (a consumer goods trading firm). Recent key acquisitions include the purchase of KarstadtQuelle AGÆs sourcing arm, and the global sourcing operations of Tommy Hilfiger.
Since 1995, the Li & Fung has made 30 acquisitions. And, according to a Standard and PoorÆs report: ôThe companyÆs good track record of integrating acquisitions offsets concerns about its significant appetite for acquisitive growth.ö
The Fung brothers, group non-executive chairman Victor and group managing director William, have led the business for 30 years. Victor acts as a non-executive director of Bank of China (HK), PCCW, Sun Hung Kai Properties, Orient Overseas, CapitaLand and Baosteel Group Corporation. William, for his part, is an independent non-executive director of HSBC Holdings, CLP Holdings, VTech Holdings and Shui On Land, as well as a non-executive director of various companies within the Li & Fung group.