Hanny plans debt sale to purchase China property

US$150m convertible bond issue will be taken up by consortium headed by ITC

Investment firm Hanny Holdings plans to sell US$150 million of bonds convertible into shares to a consortium of investors led by key shareholder ITC Corp to buy property in the mainland through unit China Enterprises.

Hanny said it would sell US$75 million of the bonds to ITC, which holds 23.3 per cent of the firm, at a conversion price of $3.96 a share. United States hedge fund Stark Funds will buy US$65 million while Evolution Capital Management, a private equity fund, will take up US$10 million of the bonds.

The conversion price represents a 9.2 per cent premium to the $3.625 a share that Hanny's shares closed at on June 28, when they last traded before suspension.

ITC and Stark together would hold 52.7 per cent of the company if all the bonds are converted into shares, up from 24.6 per cent.

Hanny will redeem any unconverted bonds on maturity in five years at 110 per cent of the principal value.

With the funds raised from the sale, Hanny will buy US$100 million of convertible bonds sold by US-listed China Enterprises at a conversion rate of US$3 a share. That represents a premium of 18 per cent over the last closing price of US$2.55 a share.

Should the bonds be all changed into shares, Hanny's holding in China Enterprises would rise to 91.1 per cent from 58.1 per cent, but may fall to 12.4 per cent depending on whether ITC, Stark and Evolution exercise their exchange right.

ITC, Stark and Evolution have the right to swap their Hanny bonds into China Enterprise bonds. If they all choose China Enterprise bonds, ITC will own 39.4 per cent of the firm, while Stark and Evolution will hold the same interest on full conversion.

The expected yield to maturity of both Hanny bonds and the bonds sold by China Enterprises is about 2.89 per cent.

China Enterprises holds a tyre manufacturing plant in Hangzhou, several property projects in the mainland and a stake in local package tour operator Wing On Travel (Holdings). The company plans to acquire property in Guangzhou and Beijing.

Hanny's shares, which resumed trading yesterday, dropped 4 per cent to close at $3.475. ITC shares, suspended the same day as Hanny's, rose 7 per cent to close at 62 cents when trading resumed yesterday.