Chaoda raises $1.3b from convertible bonds

Chaoda Modern Agriculture (Holdings) has raised $1.34 billion from the market by selling zero-coupon bonds convertible into the company's shares, according to sources.

The five-year bonds will be convertible into the company's shares at $6.72 each, a premium of 10.2 per cent over Chaoda's last closing price of $6.10 on Friday.

This was the company's second fund-raising exercise in the past 14 months.

Sources said Chaoda planned to use 80 per cent of the net proceeds to expand its farm lands and for capital investments with the remainder for general working capital.

Investors can redeem the bonds in 2011 at 128.01 per cent of their face value or sell them back to the company three years after at 115.97 per cent, giving a 5 per cent yield.

Meanwhile, chairman Kwok Ho placed 100 million Chaoda shares at $5.60 each, a discount of 8.2 per cent on Friday's closing price. Those shares have a lock-up period of 12 months, according to the term sheet of the sale.

JP Morgan - the sole arranger of the bonds and share sales - declined to comment.

Separately, Shanghai Real Estate will face rising leverage after its proposed US$150 million bond issue, according to international ratings agencies.

Standard & Poor's Ratings Services said the proposed bond issue would give the company an aggressive financial profile if it went ahead.

Earnings before interest, taxes, depreciation and amortisation might drop to about three times by next year from 10 times in 2005, the ratings agency said.

It assigned its BB-minus long-term corporate credit rating to the developer and its BB-minus rating to the proposed bond issue.

'The ratings reflects the low cost of Shanghai Real Estate's land bank, the good locations of some of the properties it is developing, and the company's experience and local knowledge in Shanghai,' said S&P analyst Jacqhaine Cheung.

Shanghai Real Estate, which has land bank of more than 1.4 million square metres in gross floor space in the city, is planning to use the net proceeds from the bond issue to replenish its land bank.

However, Moody's Investors Service said it could undergo a downgrade.

'A weakening in its liquidity profile, such as its total cash dropping below 20 to 25 per cent of total debt, or the company failing to return to positive free cash flow by end-2008, could also pressure the rating,' it said.