The initial conversion price is HKD1.05 per conversion share, which represents a premium of approximately 116.49% over Huarong Energy’s closing price on the Hong Kong Stock Exchange of HKD0.485 per share on 24 October, being the date of the subscription agreement.
Zhang Zhirong, substantial shareholder of Huarong Energy, has agreed to be the guarantor for the deal.
The maturity of the convertible bonds, bearing 7% interest per annum, will be due 24 months after the closing date.
“Given the existing indebtedness will be due for repayment soon, the directors consider that the issue of the convertible bonds serves to extend the maturity of the existing indebtedness and therefore mitigate the group’s liquidity pressure in the short run and improve its financial position,” Huarong Energy said.
The group said the proposed bonds issue is necessary in view of its “deteriorating financial position”, coupled with the current adverse market conditions in the shipbuilding industry. The group’s energy service business is still at an early development stage which may not be able to make a significant contribution to its cash flows in the short run.
Huarong Energy, formerly known as Rongsheng Heavy Industries, had changed its name to reflect its shift in focus to become an energy service provider.
The shipbuilder-turned-energy service provider has been engaged in ongoing efforts to dispose of liabilities via the allotment and issue of subscription shares to certain bank and supplier creditors.
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