Chinatex Corp, a Chinese state-owned enterprise, will procure a majority stake in Hong Kong-based knitted fabric producing firm Fountain Set (Holdings) Limited.

Fountain Set, the firm established by the Ha Chung-fong family in 1969, would sell its 409 million new shares worth HK$ 511.3 million to the Chinese conglomerate, the country’s biggest cotton trader.

Post acquisition, Chinatex would have a 34 percent stake in Fountain Set, while Ha family’s holding would reduce from the current 43.28 percent to 28.56 percent.

Fountain Set is a leading producer of circular knitted fabric and it caters to fabric needs of garment firms in 40 nations.

The firm made HK$ 7.6 billion in revenues during the year ended August 31, 2011. However, it anticipates the ongoing financial year to be a challenging one due to sluggish demand from North America and Europe.

The company is now planning to shift its focus to the mainland market.

Fountain Set proposes to use a minimum 60 percent of the sales proceeds received from Chinatex for repayment of its bank loans.