XTEP INT'L (01368) plans to conduct a rights issue for 90.9 million existing shares followed by a new issue, as well as issue 500 million Hong Kong dollars convertible bonds, with a net fundraising of approximately 985 million Hong Kong dollars.

XTEP INT'L (01368) Announcement: On February 9, 2025, the company, the seller (Quncheng Investment Limited), and the placing agents entered into a placing and subscription agreement. According to this agreement, (a) the placing agents have agreed to act as agents of the seller to encourage subscribers to purchase (or if unsuccessful, purchase themselves) a total of 90.9 million existing shares at the placing price; (b) the company has agreed to issue a total of 90.9 million new shares to the seller at the subscription price (the same as the placing price) in accordance with the terms and conditions of the placing and subscription agreement. The placing price is HK$5.50 per share, with a discount of approximately 9.4% from the closing price of HK$6.07 per share on February 7. The number of subscription shares (equivalent to the number of shares sold) represents approximately 3.39% of the total number of shares issued by the company on the announcement date; and approximately 3.28% of the total number of shares issued by the company after the subscription is completed. On the same day, the company entered into a convertible bond subscription agreement with an agent. According to this agreement, the agent conditionally agreed to subscribe or facilitate the subscription (by itself or through its affiliated companies or sub-agents) and pay the company for a total principal amount of HK$500 million of bonds, subject to the terms and conditions of the convertible bond subscription agreement. The issue price of the bonds shall be 100% of the principal amount of the bonds, with a face value of HK$2 million per bond and its multiples. Based on a preliminary conversion price of HK$6.325 per share (a 15% premium over the placing price) and assuming full conversion of the bonds, the bonds will be convertible into a maximum of 79.0514 million new convertible bond shares, equivalent to approximately 2.95% of the total number of issued shares by the company on the announcement date; and approximately 2.86% of the total number of issued shares after the issuance and expansion of the new convertible bond shares by the company. The total proceeds from the subscription and bond issuance will be approximately HK$1 billion, with an estimated net proceeds of approximately HK$985 million. The company plans to use the net proceeds from the subscription and bond issuance to further develop the XTEP main brand and Saucony's direct-to-consumer (DTC) business model; further strengthen Saucony's brand promotion and product portfolio; and use as working capital to support general corporate purposes. The announcement stated that since 2020, Saucony has relied mainly on the DTC model to expand its retail network in China. Over the past five years, the DTC strategy has driven rapid growth in the professional sports division. The division's revenue achieved a compound annual growth rate of over 100% from 2020 to 2023, reached breakeven in 2023, and demonstrated resilience in 2024. Looking ahead, the group will further drive Saucony's brand strategy and continue to introduce flagship and concept stores with enhanced imagery to complement the development of its clothing and lifestyle leisure product matrix. Due to Saucony's significant success in retail network management, the group believes that increasing investment in the XTEP main brand DTC strategy is crucial for its future development. XTEP's "160X" running shoe series has witnessed the birth of many champions and has the highest wearing rate in key marathon events, solidifying its leading position in the Chinese running sector. By strengthening the direct sales strategy, XTEP can have deeper and more personalized interactions with customers, promote brand loyalty, and increase customer retention. The XTEP brand will be able to adjust product portfolios, marketing strategies, and enhance customer experience more effectively and rapidly, improve operational efficiency, and promote brand upgrades. In the future, the XTEP main brand plans to gradually reclaim distribution rights from distributors who are willing to retire, optimize the retail channel structure, ensure timely and accurate market insights, and ultimately drive better sales growth. From a medium-to-long-term perspective, in the ever-changing retail environment, the group will benefit from the DTC strategy. By controlling data and interacting with customers, it can enhance brand awareness, accelerate growth, and create sustainable profitability.