Red chip CNPC (Hong Kong) is considering a US$120 million convertible bond issue to meet capital expenditure and future expansion needs, the company says. Under a share-sale deal agreement restricting CNPC from issuing new shares signed in December, the issue can be launched only after June 15, a source said. The company had yet to decide whether to proceed with the convertible bond issue or the size and timing of it, the source said. The listed arm of mainland oil giant China National Petroleum Corp would not be short of financing in 12 months even if it did not proceed with the convertible bond issue, he said. Without the terms being fixed, it was not able to detail the dilution effect the convertible bonds would have on the interests of shareholders, according to a document on the December acquisition and share-sale agreement. JP Morgan Securities Asia has been appointed financial adviser to CNPC on the acquisition and the bond issue. Under the December agreements, CNPC has to pay one billion yuan (about HK$920 million) for a 70 per cent stake in a production-sharing interest in Leng Jiapu oilfield in northeastern China, and contribute $65.5 million to the cost of development operations in the first two years, plus other expenses. The acquisition will be funded from the net proceeds of $596 million in a share sale to parent Sun World. The company also had an option to call on its parent to buy $386.5 million in shares by December to partly fund the project. The cash-flow generated from the project, expected to start at the end of the year, also would be used to finance development costs. Deutsche Morgan Grenfell Securities Hong Kong's head of oil and gas research in Asia, Fanton Chuck, said the company had no debt and little cash, which made it necessary for it to raise funds whenever it made new investments. He expected the company would need $250 million for investments within the next five years. 'The terms of the deal are very much distorted in favour of the listed company. These deals are done as part of the fattening up process,' Mr Chuck said. He expected CNPC would be able to close three new acquisition deals within two years.