Smaller investors in Li Ning must feel as though they’ve hit the wall in the sportswear group’s marathon to recovery. Last week major backers of the struggling Chinese company revised the terms of a convertible bond they bought a year ago that leaves remaining investors feeling short changed. Little wonder those investors wiped 15 per cent off Li Ning’s share price on Friday.
TPG, the US private equity fund, and GIC, the Singapore sovereign wealth fund, came to Li Ning’s rescue in January last year when it stumbled over a mountain of inventory. The two investors paid $120m for bonds that could be converted for HK$7.70 a share – a small premium to Li Ning’s share price at the time. Yet last week, Li Ning announced it would raise up to $241m in securities that can be converted for just HK$3.50 a share. That is a 44 per cent discount to Li Ning’s undisturbed share price before its shares were suspended last Thursday. And as part of the fundraising plans, TPG and GIC have renegotiated to convert their original convertible bonds at HK$4.50 a share.
The remaining investors have good reason to feel pain. Li Ning already broke the news last December that the group probably made a record net loss for 2012. It will need up to $289m to help clear the trainers and tracksuits it stuffed distributors with during the hype of the 2008 Beijing Olympics. And there are few signs that the end of the struggles are in sight – Li Ning will not report same-store sales growth or future trade fair orders this year, it says. TPG placed one of its team, Kim Jin-goon, on the board of Li Ning last July, so its move to renegotiate its terms shows little confidence in a turnround any time soon.