Small Li Ning block sold at 4% discount

An institutional investor pockets $59 million from the sale of a 2% stake in the sportswear company.
An undisclosed institutional investor last night raised HK$460.9 million ($59 million) by divesting part of its stake in Li Ning through a placement û the second such sell-down in the Chinese sportswear company in just two months.

The 20.97 million shares were priced at the bottom of the indicated range at HK$21.98 for a 4% discount, or towards the low end of the discounts achieved on other Hong Kong placements this year. However, the fact that the price was fixed at the bottom of the range is entirely in line with the current trend. The shares were offered at a discount of 2% to 4% versus yesterdayÆs closing price of HK$22.90. Citi was the sole bookrunner.

The order book was filled in only 90 minutes by around 30 investors. A source close to the deal says many of the investors were mutual funds and pre-existing holders of the stock. Geographically, most of the buyers came from Asia, although there was a ôdecentö amount of interest from the Middle East. Due to the relatively narrow discount, there was not much interest from hedge funds, the source says.

The shares sold represent just 2% of the company and about eight days of trading, based on an average daily trading volume of 2.6 million shares.

It is instructive to compare this deal with the March 25 placement, as they are quite similar in size. However, the previous deal involved the companyÆs founder and chairman, Li Ning himself, as the seller. This may have added to the selling pressure after the deal as investors typically donÆt like core owners to trim their holdings û especially not at a time when the stockmarket is already jittery. The chairman sold shares equal to a 3% stake in the company, raising about $75 million at a price of HK$19.60 per share.

However, the discount at the time was a much steeper 8.6%, out of a 5%-10% range. The source says that yesterdayÆs deal would have benefited from the fact that the indicated discount range was tighter at the outset because ôeveryone anchors at the bottom end of the range nowö.

The stock fell a combined 12.7% in the two days following the placement in March but quickly recovered and hovered around the pre-deal close for about a month before moving decisively above it in late April. However, yesterdayÆs close of HK$22.90 û following a 3.2% gain on the day û is still short of the price in early January, when the shares were selling for HK$30 per share.

There are a number of mainland sportswear companies currently in the process of listing, which has attracted attention to the sector and may have affected the sellerÆs decision to secure some profit now. On Wednesday, ChinaÆs second largest fashion sportswear brand, Xtep, completed an initial public offering of $285 million by fixing the price at the bottom of the range at HK$4.05. And today, Pou Sheng is expected to conclude its IPO of at least $309 million. The company, which represents the retail distribution business of athletic shoe-manufacturer Yue Yuen Industrial Holdings, has told investors that the price will end up in the bottom half of the HK$2.93 to HK$3.75 range.

Li Ning intends to double its current 5,000 retail outlets by 2013, penetrating ChinaÆs second- and third-tier cities. It also has international exposure by partnering with the Spanish and Swedish Olympic delegations. In March it reported a 60% net profit increase for 2007 to Rmb473.6 million, due to widening operating margins and a decrease in tax payments. The forthcoming Olympics have also played a part in increasing the demand for its goods.
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