May 5 (Bloomberg) -- Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc. and Target Corp., plans to raise HK$2.7 billion ($348 million) selling new shares at a discount to fund acquisitions in the U.S. and Asia.

Li & Fung fell the most in three weeks in Hong Kong trading after the company said it will sell stock at HK$22.55 apiece, 6 percent less than yesterday’s closing price. UBS AG downgraded the shares on concern U.S. consumer spending will remain too weak to justify expansion.

“There are certainly acquisition opportunities, but what is less certain is whether there is strong consumer demand to support the business,” Fiona Wong, a Hong Kong-based analyst at Sun Hung Kai Securities Ltd., said in a phone interview today.

Company President Bruce Rockowitz is signing outsourcing deals and buying rivals, last month completing an agreement to supply Liz Claiborne Inc., whose brands include Kate Spade and Juicy Couture. Li and Fung, the second-biggest gainer on the benchmark Hang Seng Index this year, made 62 percent of its HK$110.7 billion sales last year in the U.S., with 30 percent coming from Europe.

Rockowitz is eyeing “acquisitions and some major outsourcing deals” as prices of assets have fallen globally, he said in an interview with Bloomberg Television in Hong Kong. “We see a lot of opportunities in the U.S. right now to buy things that we’ve always wanted to buy, at prices that we feel are very reasonable.”

Shares Slide

Li & Fung fell 8.1 percent to close at HK$22.05, the most since April 15 and making it the biggest loser on the benchmark Hang Seng Index today. That cut the stock’s gain this year to 66 percent, compared with a 14.2 percent rise for the benchmark.

The share sale “will dilute earnings by roughly 3.5 percent,” according to a note to clients today from UBS analysts Spencer Leung and Erica Poon Werkun. “Our recent conversations with industry sources suggest that U.S. sources will not spend at the level previously seen,” said the analysts, who downgraded Li & Fung’s stock to “sell” from “neutral.”

U.S. consumers are still limiting spending on concerns over unemployment and decreasing income and home values. Purchases decreased 0.2 percent in March, the first drop this year, the Commerce Department said April 30.

Rockowitz, who returned from a trip to the U.S. today, said he sees signs the world’s largest economy has “hit a bottom,” and that “the bottoming out will probably last until the end of the year.”

Credit Rating

“The U.S. is starting to improve and this is a dominant market of Li & Fung,” Rockowitz said. “Things are a lot more optimistic now than in October, even two months ago.”

Standard & Poor’s Ratings Services said today its A- long- term corporate credit rating and “stable” outlook on Li & Fung aren’t affected by the share sale.

“The share placement would increase Li & Fung’s financial flexibility and the headroom for the current rating,” S&P said in a statement. That’s “assuming that less than the full amount is used for acquisitions and that the company’s borrowings don’t materially increase.”

The funds raised will be used to finance potential acquisitions and strengthen Li & Fung’s balance sheet, the Hong Kong-based company said. It will sell 120.3 million shares, raising a total of HK$2.7 billion, with net proceeds of HK$2.68 billion, the company said.

The sale may be the biggest additional local share offering by a Hong Kong-listed company since Champion Real Estate Investment Trust raised HK$2.96 billion in late May 2008, according to data compiled by Bloomberg.

Capital Raising

The MSCI World Index of 23 developed markets yesterday rose 3 percent while the MSCI Asia Pacific Index has climbed 33 percent since March 9, erasing earlier losses this year and making it easier for companies to raise capital. Bluescope Steel Ltd., Australia’s biggest maker of the metal, may raise as much as A$2.7 billion ($2 billion) from a loan and a share sale to refinance debt.

Macquarie Group Ltd. raised A$540 million on May 1 selling stock at a 19 percent discount and announced a share purchase that may raise as much as A$200 million, according to a person with knowledge of the sale. It also plans to raise about A$500 million to cover staff bonuses.

The Li & Fung shares to be sold represent 3.2 percent of its stock as enlarged by the sale. They will be sold to at least six individual or institutional investors.

Citigroup Inc. and Goldman Sachs Group Inc. are managing the Li & Fung sale.

“The gloom over the global recession may be easing but the major markets and economies still aren’t posting growth,” Sun Hung Kai’s Wong said. “One bright spot is that a share placement won’t raise the company’s debt ratio.”

To contact the reporters on this story: Frank Longid in Hong Kong at flongid@bloomberg.net; Wing-Gar Cheng in Beijing at wgcheng@bloomberg.net

Last Updated: May 5, 2009 07:24 EDT