Wing On Travel (Holdings) will receive a $1 billion injection from a pool of investors that includes units of Hutchison Whampoa and China Strategic Holdings for expansion and debt reduction. Its share price yesterday rose 21.12 per cent to close at 86 cents. The deal, involving the issue of convertible exchangeable notes, took the market by surprise as the travel agency had debts of almost $1 billion in the middle of last year with a market capitalisation of just $376.3 million. 'We are eyeing investment opportunities in hotel operations and currently in negotiations with several partners, which may lead to business co-operation in getting mainland tourists for outbound sightseeings,' Wing On chairman and executive director Lawrence Yu Kam-kee said. Under the subscription agreement, China Enterprises - the largest shareholder of Wing On with a 19.8 per cent stake after cashing in $119.7 million in a recent share placement - would snap up $300 million of the five-year notes, Hutchison International would take $200 million and a pool of nine institutional investors would take the remaining $500 million. Management declined to identify the institutional investors or fund managers who have joined the subscription. China Strategic, controlled by businessman Charles Chan Kwok-keung, holds a 55.2 per cent equity and an 88.79 per cent voting interest in China Enterprises, an investment holding firm traded on the United States over-the-counter market. The 2 per cent convertible notes can be turned into Wing On stock at a conversion price of 79 cents before maturity in 2011 or redeemed at an amount equivalent to 110 per cent of the principal. The yield per annum is expected to be 3.85 per cent over the five-year period. Wing On executive director Richard Lui Siu-tsuen declined to specify how much of the funds would go into business expansion or would be used for working capital, including debt reduction. However, sources believed the proceeds would be used mostly to refinance debt, including the $365 million promissory notes that must be repaid to Hutchison next year. If all the subscribers were to convert their notes into shares, China Enterprises' stake in Wing On would increase from 19.81 per cent to 26.68 per cent. If Hutchison International and the institutional investors were to cash in their notes, China Enterprises' stake would rise to 50.5 per cent when the notes matured. In mid-2002, Hutchison sold a 95 per cent stake in Beijing Harbour Plaza Hotel to China Enterprises for $515 million in the form of $150 million in cash and $365 million in five-year promissory notes. China Enterprises then injected the five-star hotel into Wing On, including the debt, as part of a series of corporate restructuring. The property was later renamed as Beijing Rosedale.
