Li & Fung slumped nearly 15 percent on Friday, the steepest decline in six weeks, after its US client KB Toys filed for bankruptcy. However, the firm clarified that its exposure stood at about $5 million.
Li & Fung, the supplier of toys, clothing and consumer products to retailers such as US supermarket chain Wal-Mart, said in a statement that its business with KB Toys is conducted on an agency basis. "The group's exposure to KB Toys is approximately $5 million, representing mainly commission outstanding," the company said in a clarification announcement to the stock exchange on Friday afternoon.
Shares in Li & Fung slumped nearly 15 percent before closing 12.69 percent lower at HK$14.86, as its US client KB Toys listed the Asian consumer goods exporter as its largest creditor with a claim of about $27.2 million.
The firm said that the amount reported may refer to money owed by KB Toys to factories that supply Li & Fung, according to the statement.
The supplier also suffered from the steep losses in Hong Kong's broader market after the US auto industry bailout plan was turned down.
Castor Pang, a strategist at Sun Hung Kai Financial, expects Li & Fung to continue to be hit by the bleak US consumer market as it is a supplier to many companies in America.
"A lot of companies have issued profit warnings," he said, "similar news like KB Toys' may come out again."
Li & Fung's account receivable, which is money owed to a company by a customer on credit, may rise significantly next year, Pang said.
However, Li & Fung's financial fundamental is sound, he said, adding the overall economy in the US is negative.
"Investors lost confidence in Li & Fung due to the weak economy," Pang said, "I am not that optimistic about the Christmas sales in the US, either."
KB Toys, an 86-year-old toy retailer based in Pittsfield, Massachusetts, said on Thursday it had filed for bankruptcy and has plans to close stores because of a "sudden drop" in sales in the past two months.
