Instead of issuing new shares at a discount to the current share price, however, the company opted to sell $173 million worth of convertible bonds in order to raise equity at what it hopes will be an even higher share price in the future. The money from the bonds will go towards the expansion of farm land.
At the same time the companyÆs Chairman Kwok Ho cashed in some of his shares in the company bringing the combined fundraising to $245 million, or HK$1.97 billion.
The chairman will still hold just over 30% in the company after the sale is completed.
JPMorgan was sole bookrunner for the offering, which resembled an equity/CB deal it did for IndiaÆs Hindustan Construction last week, although that deal was preceded by a formal road show.
The chairmanÆs 100 million shares were offered to investors first at a fixed price of HK$5.60, allowing him to raise HK$560 million ($72 million). The price equated to a discount of 8.2% to last FridayÆs close of HK$6.10.
The shares, which were suspended from trading yesterday, have however rallied about 14% since the company released its full year earnings on March 24, including a 7% gain last Friday, and compared with the five-day average closing price, the share shares were sold at a discount of only 0.4%
Even so, the order book was said to have been well covered, with the buyers comprising an even mixture of Asian and European accounts. The deal was completed a bit early for US investors to have much of a chance to participate.
The five-year CBs were then priced off the share sale with the conversion price fixed at a 20% premium to the placement price, people familiar with the process said. The bonds will pay no coupon, but are redeemable at 128.01% of face value. Investors can also sell the bonds back to the company at 115.97% after three years for a yield to put and to maturity of 5%.
That seems unlikely to happen, however, as the bonds also have a conversion price reset after 18 and 30 months if the share price is still trading below the prevailing conversion price. The reset is subject to a floor of 80% of the initial level.
One observer said the this was included because the company does wants the CBs to convert and give it some additional equity on the balance sheet.
There is also an issuer call from the end of year three, subject to a 130% trigger. If they are converted in full, the company will have to issue new shares for a dilution of about 8.5%. The placement accounted for about 4.2% of the companyÆs existing issued share capital, according to Bloomberg data.
The bonds too were well received by investors and reportedly traded above par in the aftermarket last night. Many investors bought into both the placement and the CB in order to partially hedge their bets and get a blended acquisition price, one observer said.
ôBecause the CB was priced off the placement price that was almost 9% below the current market price, the actual conversion premium is really no more than 11%. Add 45% historic volatility and a sharp share price gain already this year, and the CB looks very attractive for investors,ö he added.
The underlying assumptions included a credit spread which was based on the companyÆs high yield bond, which trades at about 270-290 basis points above Libor. There is full dividend protection above 2% and a 5% stock borrow cost was assumed as there isnÆt really any lending available.
That gave a bond floor of 92% and an implied volatility of 28%.
ChaodaÆs share price has surged 78% this year alone amid massive investor appetite for consumption-related companies based in China.
Chaoda posted a 38% increase in operating profit to Rmb659.7 million ($82.2 million) for the six months to December, on a 22% rise in turnover to Rmb1.29 billion. Net profit fell by 10%, partly due to lower one-off gains compared with when the company adopted new accounting standards in the previous year. It also incurred higher finance costs following the issuance of a high-yield bond in February last year.
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