The convertible bonds due 2019 is priced at HKD0.50 apiece for up to 1,502,000,000 shares, representing a premium of around 16% over Huarong Energy’s closing price on the Hong Kong Stock Exchange of HKD0.43 per share as quoted on 16 January.
Zhang Zhirong, substantial shareholder of Huarong Energy, has agreed to be the guarantor for the deal.
The subscriber Action Phoenix is wholly-owned by investment firm VMS Holdings, beneficially owned by Mak Siu Hang Viola.
“The convertible bonds shall be issued in exchange for the existing indebtedness subject to and in accordance with the terms and conditions of the subscription agreements. As a result, no proceeds shall be received by the company in respect of the issue of the convertible bonds,” Huarong Energy stated.
“Given the existing indebtedness will be due for repayment by 30 June 2017, the directors consider that the issue of the convertible bonds serves to extend the maturity of the existing indebtedness owing to the subscriber who was the holder of the 7% convertible bonds due 2016 issued by the company on 7 August 2013 and therefore mitigate the group’s liquidity pressure in the short run and improve its financial position,” it added.
Huarong Energy, formerly known as Rongsheng Heavy Industries, has been struggling amid adverse market conditions in the shipbuilding industry and recorded unsatisfactory financial performance.
While the company has made its transition from a shipbuilder to an energy service provider, it is still at an early development stage and the new business has not yet made a significant contribution to the group’s cash flows.
In October 2016, Huarong Energy completed another issuance of convertible bonds worth HKD103.5m for subscription by Credit Suisse (Hong Kong) Limited, also for the purpose of extending the maturity of existing indebtedness.
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