The sports talent management company Viva China Holdings Ltd - controlled by its Olympic gymnast founder Li Ning - plans to pay $175 million for a 25 percent holding in Li Ning Co, China's best-known sportswear group of which Li is also founder and chairman and which still bears his name.

A Li Ning Co store in Beijing. The company operates 7,300 branded sports stores across China. [Photo/Agencies]

In a move that has raised market doubts over Li Ning's commitment to the retailer, Viva said on Wednesday it would buy shares in the company from Victory Mind Assets Ltd and Dragon City Management Ltd, which are controlled by Li Ning and his brother Li Chun.

Shares in Viva more than doubled on the news, but shares in Li Ning, which operates some 7,300 branded sports stores in China, dropped more than 6 percent as investors said the deal suggested the group's founder was gradually giving up direct control of the business.

Viva, which is backed by the US private equity group TPG Capital and Singapore's sovereign fund GIC, said in a statement the purchase was aimed at expanding its business in China into the sports sector, in addition to its operations in community development and air-conditioning manufacturing.

It said the deal would allow the two companies to explore strategic development opportunities in sports advertising and sponsorship, and that the purchase will also improve its financial footing and competitiveness.

Viva will settle the deal by issuing new shares after a five-for-one share consolidation.

TPG and GIC each own about 5 percent of Li Ning and have the ability to raise that to a combined holding of about 20 percent over the next five years by converting bonds into shares.

Peng Gangxiang, an analyst at Guotai Junan International Holdings Ltd, said Li Ning will have better control of Viva China without a further reduction of the Li Ning shares.

But he added the transaction has little influence on the sports retail business, already suffering in a slower market and struggling to reduce massive inventories while implementing a restructuring in response to changes in the fiercely competitive, $19 billion Chinese sportswear market

"We are concerned about the possibility that Chairman Li Ning's involvement in the (sportswear group) may decrease in the future, with TPG taking increased control," Bank of America Merrill Lynch said in a research note, quoted by Reuters.

A statement from Li Ning insisted the transaction is not expected to result in a change in business strategies, management and day-to-day operations.

In August, Li Ning posted an 85 percent slide in first-half net profit as its inventories piled up. It warned full-year revenue would fall, and said it may post a loss. The sportswear retailer reported a 65 percent drop in profit last year as competition got heated from Nike Inc, Adidas AG, and the domestic brand Anta Sports Products Ltd.

The retailer has undergone many changes recently to revive its fortunes, including forming a partnership with NBA All-Star Dwayne Tyrone Wade to promote basketball in China in October.

In July, it appointed executive vice-chairman Kim Jin-Goon, managing director at TPG, to co-lead the firm with Li Ning after the departure of Zhang Zhiyong.

And last week, it said Chief Financial Officer Chong Yik Kay resigned, the latest departure from the ranks of its senior management.

The company's sales and earnings visibility is still low, and sales inventories are still piled up in stores, said Peng.

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