Li & Fung pockets $356 million from upsized placement

The company's first primary equity offering in more than five years aims to raise funds for future acquisitions and comes after its share price hits an all-time high.
Li & Fung has raised HK$2.77 billion ($356 million) from a top-up placement that was upsized due to strong demand.

The Hong Kong firm, which hasnÆt tapped the primary equity markets since 2000, priced the offering at the mid-point of the indicative range, as some investors attached price limits to their orders. It was the first Hong Kong placement since the controlling shareholder of department store operator Parkson Group placed $171 million worth of shares in late August.

Given that the placement comes only a week after Li & Fung's share price hit an all-time high of HK$19.06, the fund raising appears somewhat opportunistic. According to fund managers, the company is being vague about the use of proceeds, saying only that the money will be used to fund future strategic investments.

Investors seemed to have no problem with that, however, as the company has a history of making earnings-accretive acquisitions. In the past six years, it has completed more than 15 successful takeovers, five of which happened in the past year alone. As recently as July this year it paid $162 million for Rosetti Handbags and Accessories û a leading US designer and importer of handbags.

In its current three-year plan, the company has noted that future acquisitions will be a key growth driver for the firm which sources goods for retailers including Wal-Mart and Abercrombie.

The companyÆs focus will be on both large acquisitions to accelerate business growth and on small- to medium-sized deals meant to strengthen key areas of its business, Li & Fung said in its interim earnings report.

At the time the books closed, the Goldman Sachs-led deal was said to have been more than three times subscribed.

The initial deal size comprised 140 million secondary shares offered for sale by the Fung brothers who together hold about 33% in the company. The offer size was later increased by 14% to 160 million, according to a source familiar with the deal. The Fung brothers will subscribe to the same amount of new shares at the same price, which means all the proceeds will go to the company.

The price was fixed at HK$17.30, or at a 4.2% discount to yesterdayÆs close of HK$18.06. The shares were initially offered in a range between HK$17.14 and HK$17.50, which translated into a discount of 3.1%-5.1% versus the latest market price.

Allocations had yet to be finalised early this morning, but the book attracted good interest from a mixture of retail investors, hedge funds and high quality long-only funds, the source said. Orders came in quite quickly when the books opened after the Hong Kong market closed, but the deal was kept alive for a few more hours to give US investors a chance to participate.

In the first half of this year, Li & Fung posted a 19% increase in revenues to HK$28 billion, while net profits rose 24% to HK$764 million.

According to Bloomberg data, 18 of the 23 analysts who follow Li & Fung have a ôbuyö recommendation on the stock, while the remaining five rate it ôholdö or ôneutral.ö The consensus target price is HK$19.94, suggesting another 10.4% upside from current levels.

The share price has gained 33% this year, compared with a 16% rise in the Hang Seng Index.
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