China Water plans $300m debt float to fund project
China Water Affairs Group plans to sell as much as $300 million in five-year convertible bonds, its third fund-raising in five months, to fund water supply development projects on the mainland.
The latest deal boosts China Water's investment war chest to $473 million, including $175 million raised earlier through two share placements.
To capitalise on the deregulation of mainland utilities, the firm has signed preliminary agreements since March to develop seven water projects in Hainan, Gansu, Henan, Yunnan, Hubei, Zhejiang and Guangdong provinces.
Key terms remain to be negotiated, including shareholding, the assets involved and the overall size of the investment.
To reassure investors that the funds raised from the sale would be used as promised, China Water and an unidentified European investment bank agreed that the bank would hold the money in escrow, releasing it only if the firm provided written confirmation that the fund was for water-related projects.
DBS has agreed to buy $260 million worth of the bonds, with an option to raise the total to $300 million over the next three months.
The bonds will carry an interest rate of 2.5 per cent payable twice yearly.
The bonds can be converted into 150 million new shares, or 14.4 per cent of the firm's enlarged issued share capital, at $2 each any time before 2011.
The conversion price is at a 13.6 per cent premium to the China Water shares' last closing price of $1.76 before trading was suspended on Thursday last week.
The stock edged closer to the conversion price yesterday, ending up 11 cents or 6.25 per cent at $1.87.
Excluding the planned bond float, China Water Affair's unaudited bank borrowings total $17.4 million while other debt stand at $101.3 million.
Upon full conversion of the bonds, the stake of chairman and substantial shareholder Duan Chuanliang will be diluted to 14.6 per cent from 17 per cent.