Kumagai Gumi (HK) expects to spend about HK$800 million to redeem its five-year convertible bonds by the end of this year, as their conversion price is far above the market value, executive director Michael Ng Chi-man said. The plan was unveiled yesterday after Kumagai's independent shareholders at an extraordinary general meeting gave approval for China Everbright International (CEI) to subscribe for 90 million new Kumagai shares, raising CEI's stake in the company to 35.07 per cent from 20.98 per cent. CEI had earlier obtained a waver from the Securities and Futures Commission for any obligation to make a general offer as a result of the share placement. The placement, at HK$4.80 per share, will raise about HK$430 million for Kumagai. Mr Ng, also the company's chief financial officer, said the proceeds raised from the placement would boost cash-on-hand in the company to about HK$1 billion, strengthening the company's financial position. He said by the end of this year the company probably would redeem the US$100 million of convertible bonds that were issued in late 1993 and carried an initial conversion price of HK$12.80 per Kumagai share. Mr Ng expected shareholders would not convert the bonds into Kumagai shares as the exercise price was far above the value of the current stock, which closed at HK$2.90 yesterday. He said the company did not face any financing pressure as repayment of most short-term loans, worth more than HK$1 billion, had been extended. However, some of those extended loans were required to pay a higher interest rate amid the credit crunch, Mr Ng said. Managing director Rupert Li Xiaoru said the gearing of Kumagai was about 40 per cent, which was not high compared with other construction firms. Mr Li said Kumagai would benefit from more construction contracts through CEI after it became the largest shareholder in the company. The first project is a 1.41 billion yuan (about HK$1.31 billion) toll-road project in Fujian province, in which CEI owns 80 per cent and Kumagai owns 20 per cent. Mr Li also revealed that the company was considering borrowing yuan to expand in the mainland, as the lending rate was lower than that charged in Hong Kong. Mr Li hoped the increasing number of infrastructure projects in Hong Kong and mainland would offset the adverse impact of the regional economic downturn on the company. Kumagai has outstanding contracts worth HK$10 billion.