By Julie Zhu and Kane Wu
HONG KONG (Reuters) -Chinese billionaire entrepreneur and Olympic champion Li Ning is considering taking his namesake sportswear company private from the Hong Kong stock exchange, four people said, adding to a string of such potential deals in a faltering market.
Li is considering leading a consortium to buy out Li Ning Co Ltd, which had a market capitalisation of HK$52.85 billion ($6.8 billion) as of Monday, said the people, who have knowledge of the matter.
Li, 61, founded Li Ning Co a few years after retiring from a decorated gymnastics career in 1988. Along with his family, he owns more than 10% of the company, its 2023 interim report showed.
A number of global and regional private equity firms, including TPG, PAG and Hillhouse Investment, have been tapped to see if they are interested in joining as an investor, two of the people said.
The discussions to take Li Ning Co private are in the early stages and details have not been finalised, said the sources, who declined to be identified as the information was confidential. The company made its Hong Kong debut in 2004.
Its stock extended gains from 2.4% in the morning trade to be up as much as 20% at HK$24.55 following the Reuters report in the afternoon, the highest since November. It closed at HK$22.1.
Beijing-headquartered Li Ning Co said in a response to Reuters that it had "not received any information regarding this matter as of now."
It said in a stock exchange filing after Tuesday's market close that it is not aware of any reasons that caused the company's "recent unusual movements" in price and trading volume or any information that must be disclosed to avoid a false market.
Li did not respond to a request for comment sent via the company. TPG, PAG and Hillhouse declined to comment.
Stock markets in Hong Kong and mainland China have tanked over the past year amid China's economic slowdown, a lack of strong stimulus policies and geopolitical tensions.
Hong Kong's Hang Seng index slumped 14% in 2023, while China's benchmark CSI 300 index fell 11%.
Li feels his company is undervalued in Hong Kong and would target a hefty premium over its current share price in a potential buyout, two of the sources said.
He did not have an imminent plan to relist his company on the mainland, one of them added.
Li Ning Co was the worst-performing blue-chip stock on the Hong Kong bourse in the past year, down nearly 70% as of Monday, LSEG data showed. That compares with a 25% drop in main rival Anta Sports.
Li was regarded as China's "gymnastics prince" after winning six of the seven gold medals at the 1982 World Cup Gymnastic Competition, and carried on to win six medals at the 1984 Los Angeles Olympic Games.
Li Ning Co said in December it would buy a Hong Kong commercial and retail property from Henderson Land (OTC:HLDCY) for HK$2.21 billion as its Hong Kong headquarters, which sent its shares to a three-and-a-half-year low on the day of the announcement.
Li also said at the time he planned to repurchase up to HK$3 billion of shares from the open market in the next six months, his first such move in its corporate history, according to Citigroup analysts.
In the announcement, the company's board said it believed its current share price was "below its intrinsic actual value".
HONG KONG TAKE-PRIVATE DEALS
Hong Kong-listed firms have been involved in $4 billion worth of take-private deals so far in 2024, versus $1.2 billion for all of last year, Dealogic data showed. Buyers often cited undervalued shares as a reason for the deals.
A number of Hong Kong-listed companies including French skincare company L'Occitane and American luggage maker Samsonite have also recently engaged with advisers and investors about potential take-privates, separate sources said.
Samsonite declined to comment. L'Occitane did not respond to a request for comment.
Bankers, however, cautioned take-private deals would remain challenging for management or private equity investors, as financing is costly in the current interest rates environment and fair valuation hard to achieve without a stabilised market.
"There are definitely more inquiries (about take-private deals) since the end of last year," said Samson Lo, UBS's co-head of Asia-Pacific M&A.
"The valuation gap is narrowing but there is still a gap," he cautioned. "Financing is still a big challenge for any sizable deals."
($1 = 7.8193 Hong Kong dollars)