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Chinese sportswear maker Xtep gets US$129 million boost from Hillhouse Capital to grow K-Swiss, Palladium brands in global markets

  • Funds managed by Hillhouse Capital to buy two tranches of convertible bonds by Xtep and its subsidiary Xtep Global
  • Money will be used to push Palladium, K-Swiss footwear brands which it acquired in August 2019, company says in exchange filings

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Ding Shui Po, Chairman and Chief Executive Officer of Xtep International. Photo: Nora Tam
Zhang Shidong
Xstep International is getting a HK$1 billion (US$129.4 million) investment boost from private equity firm Hillhouse Capital as Chinese sportswear manufacturing group seeks to expand its global market share following an earnings slump last year.
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The firm has proposed to issue two tranches of convertible bonds to offshore investment vehicles managed by Hillhouse Capital Management, according to stock exchange filings on Tuesday. The stock surged by a record 21 per cent on the news.

The capital infusion will allow the manufacturers to promote some of the foreign brands it acquired over the past two years to take on market leaders like Nike and Adidas in overseas markets, after sales stagnated last year while earnings crashed for the first time since 2017 amid rising competition with Anta Sports and Li Ning.
Sportswear makers are also facing heightened scrutiny in markets amid spats over the alleged use of forced labour in cotton produced in Xinjiang.

02:38

Global brands face backlash in China for rejecting Xinjiang cotton

Global brands face backlash in China for rejecting Xinjiang cotton

The first issue is a HK$500 million (US$64.4 million) convertible bond maturing in 2027, which will pay 1.8 per cent coupon annually. If fully converted into shares at HK$10.244 each, it will hand the private equity a 2.03 per cent stake in the Hong Kong-listed firm.

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The second is a US$65 million zero-coupon convertible bond, to be issued by its subsidiary Xtep Global, the unit that purchased French canvas shoes brand called Palladium and also the K-Swiss brand in August 2019.

The funds from Hillhouse Capital will be used to promote the two footwear brands. The bonds can be converted into a 20 per cent stake in Xtep Global while reducing Xtep International’s ownership in the subsidiary to 80 per cent, according to the stock exchange filing.

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