Global Brands Begins Trading After Li & Fung Spinoff

Global Brands Group Holding Ltd., a brands management unit spun off from Li & Fung Ltd., begins trading in Hong Kong today.

Global Brands, which manages over 350 labels including Coach Inc. shoes and licensed characters such as Angry Birds and Spiderman, closed at HK$1.80, lower than its opening price of HK$2.09. The company has a market value of HK$15 billion ($1.9 billion) based on the closing price.

Hong Kong-based Li & Fung is spinning off the licensing and brand business to focus on its core businesses of supplying clothes and toys to global retailers such as Wal-Mart Stores Inc. and Kohl’s Corp. It is not raising any funds with the spinoff.

“We’re really focused on ‘below luxury’, that’s sort of affordable luxury, and it’s new to this part of the world,” Chief Executive Officer Bruce Rockowitz said in a Bloomberg Television interview in Hong Kong today. “We have some incredible brands that are at the beginning growth stages that we’re taking to the U.S., Asia and Europe.”

Global Brands has no plans to raise funds in near future and it is “comfortable with” its current debt level, Rockowitz said in a separate interview. The company will seek bank financing if it makes any substantial acquisitions in the future, he said.

Global Brands has “high growth potential” and is ready for a life of its own, Aaron Fischer, an analyst at Hong Kong-based CLSA Ltd., wrote in a note this month before the shares began trading. “We see scope for the company to upgrade the license portfolio over time,” he wrote, forecasting compound annual growth rates for sales and core operating profit of 10 and 26 percent over three years.

Rating Cut

Barclays Plc this week cut its core operating profit estimates for Li & Fung, citing the company’s guidance of a margin contraction this year, and after stripping out the Global Brands business, lowering its rating to equalweight from overweight. He had estimated a valuation of HK$1.35-HK$1.65 for the company.

Li & Fung’s core business is sourcing and managing the supply chain for retailers, “which is very different from nurturing the brands,” its billionaire Chairman William Fung said in a March interview explaining the split.

Li & Fung fell 2.3 percent to close at HK$10.10, while the benchmark Hang Seng Index was down 1.6 percent.

Organic Growth

Rockowitz stepped down as president and chief executive officer of Li & Fung last week to become Global Brands’ CEO, and he was replaced by Spencer Fung -- nephew of William Fung and previously chief operating officer. The senior Fung becomes Global Brands’ chairman.

Li & Fung said in March it will accelerate organic growth across businesses in the three years through 2016, in order to double core operating profit at the logistics division and more than double it at Global Brands. The company plans to buy brands that are “capable of being globalized” during the three-year period, Rockowitz had said then without elaborating.

Global Brands, whose clients include J.C. Penney, Macy’s Inc. and Target Corp., had revenue of $3.3 billion in 2013 with 85 percent from the U.S. and the remaining from the rest of the world.

It has licensed brands including shoes made by Calvin Klein and childrenswear made by Nautica Apparel and Tommy Hilfiger.

(An earlier version of this story corrected the rating change in the seventh paragraph.)