LIPPO subsidiary Hong Kong China is set to launch a US$120 million convertible note through the Swiss subsidiary of a Japanese bank. The two per cent note due in 1999 is convertible into a stake of up to 20 per cent of the company. The notes can be converted any time after March 22. If not converted, interest of two per cent will be paid each year in arrears on December 31. The notes are to be underwritten by a syndicate of undisclosed financial institutions led by Daiwa Securities Bank (Switzerland). Hong Kong China is issuing the notes through a special subsidiary, Hong Kong China Treasury. A deal between the banks and Hong Kong China, which is guaranteeing the bonds, is expected to be signed next Tuesday. Payment date for the bonds is scheduled for February 22. The deal is likely to set a conversion premium of 16 per cent more than the average Hong Kong China share price over the period February 1 to 3 inclusive, according to a company statement. The shares to be issued on conversion of the bonds will be equivalent to no more than 20 per cent of the company's issued share capital on June 25 last year. That was the date a company resolution was passed allowing the directors to allot up to 20 per cent of the then issued capital. The group has 857.02 million issued shares. Shares in Hong Kong China closed yesterday at $4.55, up 20 cents from the previous close. The statement said the notes would be placed primarily with investors in Switzerland and would not be offered to the general public in Hong Kong. Convertible issues became a popular way of raising corporate funds last year. Corporations were attracted by the low interest rates they could obtain, while investors saw the chance to convert to a strong underlying security in an equity bull market. Analysts say the number of issues could taper off as companies begin to worry about the dilution the conversion can cause. Hong Kong China said the net proceeds of the issue would be used by the company and its subsidiaries for ''general corporate purposes''. Hong Kong China is 74 per cent owned by Lippo Group, making it one of Lippo's principal subsidiaries. It is mainly involved in property investment. On Monday it bought luxury apartment blocks Tregunter Towers One and Two from Allied Kajima for $2.2 billion in one of the territory's largest residential property deals. Then it said the deal would be funded by ''borrowings from financial institutions and the internal resources of Lippo and Hong Kong China''. The group paid a deposit of $439.8 million in cash and said it would pay a similar sum on or before July 27. The remaining $1.3 billion is payable before December 30. Results for the six months to the end of last June saw turnover and profit rise sharply. Turnover was up by 90 per cent at $398.55 million while profits after tax rose 155 per cent to $175.77 million compared with the previous corresponding period. Group chairman Stephen Riady, a member of the Indonesian family which controls Lippo, said that despite the restrictive lending policies of banks in Hong Kong, the prospects for the Hong Kong property market looked good in the long term due to restrictedsupply and the strong economy. Hong Kong China owns properties in Gloucester Road and Hennessy Road in Wan Chai, which it intends to redevelop, and the China Harbour View Hotel.