Tep International (1368.HK) (hereinafter referred to as the “Group” or “TEP”) announced that Ding Shuibo, Chairman of the Board of Directors and CEO of the Group, and his family will privatize the Gestway and Palatin brands at a price of US$151 million. This also means that Special Step will focus on areas of strength. All in has been deeply involved in running tracks for 17 years. Further development of running “longboard” is expected to be shown in the mid-term report, leading to a major explosion in performance.
Since entering the run market in 2007, the market has gradually established the perception that Special Step is “China's first running stock”. When it comes to running, the first thing that comes to mind is Xtrek. In September 2022, the main brand of Xtep released the “World Running Shoes China Special” brand strategic positioning, once again clarifying the future development direction of the brand. In the 2023 financial report, the new brand Sonny, which has nearly doubled over the years, achieved profit for the first time, showing the market more clearly the running landscape of Xtrek. Industry insiders pointed out that this privatization points to Tektron's running ambitions.
Special Step said it has signed a final agreement with Ding Shuibo and his family to strategically sell KP Global Investment Limited (“KP Global”), a wholly-owned subsidiary holding Gestway and Palatin brands. The transaction cost was US$151 million, which is KP Global's book value as of March 31, 2024. Removing businesses that consistently underperform from XTEP's business portfolio allows the company to focus resources on developing its highly profitable brands — the main SCP brand, Sauconnie, and Millet.
Ding Shuibo said that after a thorough review of the Group's business strategy and financial goals, the decision to sell and privatize KP Global was made. This strategic sale of assets will help eliminate the continuing impact of KP Global's losses on XP's profitability and cash flow. While increasing shareholder value, it is also planned to distribute a special cash dividend of US$151 million to shareholders. The plan is subject to review at the upcoming special shareholders' meeting and approval by shareholders. I am confident that these decisive actions will simplify the Group's business operations and enhance profitability, create stronger and more focused steps, and strengthen the foundation for a new phase of dynamic growth.
At the same time as the sale of KP Global, TEP reached a supporting agreement with Collin Capital (“Gaoyu”) to optimize the financial structure and future growth prospects.
The agreement includes KP Global's redemption of the $65 million convertible bonds issued to Gao Lin in 2021 and the issuance by Special Step of HK$500 million worth of new six-year convertible bonds to Gao Lin with an annual interest rate of 3.5% and an exchange price of HK$5.5 per share. Furthermore, Gao Lin will retain the right to purchase 20% of KP Global's shares for 65 million US dollars over the next five years, reflecting Gao Lin's full confidence in the development potential of related brands after privatization.
To streamline financial arrangements, KP Global will issue $154 million worth of eight-year convertible bonds to Special Step. The bond amount is equivalent to KP Global's cumulative losses since it was acquired in 2019, as well as capital investment and working capital up to the end of March 2024. The bond has an annual interest rate of 3.5%, which is in line with the interest rate offered by Special Step to Gao Lin. TEP has the right to convert this bond into 30% of KP Global's shares over the next eight years.
The above financial operations will help optimize the debt structure, strategically allocate capital to opportunities that can achieve profitable growth, and consolidate the financial health of Special Step. The restructuring will lay the foundation for KP Global's potential success as a private entity while still allowing XTEP and its shareholders to intermittently benefit from future success.
Through these strategic adjustments, TEP is expected to unleash value and focus on the synergy between brands in the field of running. Furthermore, the strong cash flow generated by the main STP brand will support the future development of Sauconee and Mille. If KP Global succeeds and can go public independently, Trap's shareholders will also benefit from the results achieved by KP Global.