Sinochem Hong Kong Holdings, China's largest fertiliser importer, has raised $1.3 billion to fund its expansion by selling bonds that are convertible to shares.
The red chip, a subsidiary of oil and petrochemical distribution major Sinochem Corp, completed the sale of $1 billion worth of bonds yesterday, market sources said. The sole bookrunner, Deutsche Bank, then exercised an overallotment option to sell an additional $300 million worth of the five-year bonds.
The bonds carry a conversion price of $3.74 per unit, a 30 per cent premium to the company's share price of $2.875 before trading of its stock was suspended pending the announcement of the deal.
The bonds provide a lower-cost fund-raising channel for the company than bank loans, while investors can bet on the potential upside of its shares. If all the bonds are converted into shares, they will amount to 5.65 per cent of the firm's enlarged share capital.
Investors have an option to sell the bond back to the company at a 15.55 per cent premium to the selling price after three years or a 27.23 per cent premium after five years.
The proceeds will fund Sinochem Hong Kong's expansion of its fertiliser capacity, nationwide distribution network and other corporate needs, according to a term sheet given to fund managers.
Management earlier said the company planned to buy three assets from its parent in the next three to four years. These include a 20 per cent stake in A share Qinghai Salt Lake Potash, which has 1.5 million tonnes of annual potash fertiliser capacity. The stake is worth 3.03 billion yuan at the share's closing price yesterday.
Earlier this month, Sinochem Corp acquired 24.99 per cent of Qinghai Salt Lake Industry Group, raising its effective stake in Qinghai Salt Lake Potash to 26.13 per cent.
A 40 per cent stake in Tianji Sinochem Gaoping Chemical Engineering and 60 per cent in Sinochem Shandong Fertiliser are also on its shopping list. Both have 600,000 tonnes of annual nitrogen fertiliser capacity.
Sinochem Hong Kong management in March said it wanted to double the distribution outlets to 2,000 by 2008 at an investment of 40,000 to 60,000 yuan each.
Analysts expected the firm to post a 24.16 per cent jump in net profit to $967.78 million this year, Thomson First Call said.