Loss-making Dransfield Holdings plans to raise about US$23 million through a merger and spin-off on the Nasdaq stock market to expand its paper division in China. Deputy chairman Horace Yao Yee-cheong said the fund raising exercise would come in tandem with Dransfield's cash call on the Hong Kong stock exchange to cut debts. 'We hope to lower our gearing ratio which is 68 per cent now,' he said, and ruled out a rights issue in the near future. The tissue maker and food and beverage distributor has bank loans amounting to about HK$248 million up to March, along with a full-year net loss of HK$21.4 million. 'Last year's balance sheet is poor,' he said. 'We have opted to hive off the company in America where the paper industry is widely-known.' Mr Yao said the spin-off-Dransfield Paper Holdings-planned to raise US$7 million first by selling warrants and then shares placement which might raise US$16 million. The US$7 million proceeds will be spent on expanding the wholly owned paper plant at Conghua and 60 per cent-owned plant at Jiangjin. 'When the two plants become profitable next year, we will launch the share placement to raise funds for the proposed paper plants in Tianjin, Chengdu and Chongqing,' Mr Yao said. He allayed fears that shareholders' stakes might be diluted heavily. 'We intend to sell only part of the shares as we want to remain the controlling shareholder,' Mr Yao said. Dransfield planned to pare further the weighting of the distribution of Alwa electronic consumer products this year. The division pushed the company into the red last year. 'We were taken aback by the plunging sales and profits from Alwa goods even though we have lowered its weighting to about 30 per cent of total sales,' he said. Mr Yao said Dransfield had fallen victim to smuggled goods.