Esprit to raise US$671 million in HK rights offer

Esprit Holdings Ltd looks to a rights offering in Hong Kong to generate some US$671 million to rebuild its brand after a disappointing results for the past five years.

Based in Kowloon, Esprit saw sales plummet 23% to US$852 million in the first quarter. Esprit wants the rights offer after missing earnings estimates for five straight years and losing customers to rivals. Excluding store closures, sales fell 11% on a Hong Kong dollar basis while first-quarter sales dipped 0.2%.

In September 27, 2011 Esprit as a company was valued at just US$1.4 billion or a loss in value of over 90% from US$20 billion in 2007. Esprit's brand is valued at US$3.4 billion said Credit Suisse.

The apparel, footwear and jewelry company will offer existing investors the right to buy one new share at HK$8 each for every two held. The rights offer is not welcome news for investors, however.

“This is definitely going to be a blow to investors,” said Steven Leung, a Hong Kong-based institutional sales director at UOB Kay Hian Ltd. “The rights issue may reflect a bigger cash flow problem. The company is spending way more than it earns and we haven’t seen much progress in the transformation.”

Esprit said it will issue no more than 656 million rights shares. Total proceeds from the issue will be at least US$648 million, the company said. Esprit doesn’t have plans for further fundraising and will stick to the existing budget of US$2.4 billion for its transformation strategy, said Chief Financial Officer Thomas Tang.

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