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Huarong Energy proposes new shares issuance to reduce debts

Huarong Energy proposes new shares issuance to reduce debts
Huarong Energy, formerly Rongsheng Heavy Industries, has proposed to issue new shares worth a total of HKD20.53bn ($2.64bn) for subscription by its bank and supplier creditors.

The troubled company announced to the Hong Kong Stock Exchange a proposal to issue no more than 17.1bn new shares to the creditors at HKD1.2 per share. Among the total shares, 14.1bn shares will be allocated for bank creditors and 3bn shares for supplier creditors.

The share issues to the bank creditors aim to satisfy the company’s borrowings of up to HKD16.93bn, while the share issues to the supplier creditors would go to meet relevant payables amounting to HKD3.6bn.

“In light of the depressed shipbuilding market, the group has encountered operational difficulties,” Huarong Energy said.

“The company proposes to conduct the disposal of liabilities, aiming to adjust and optimise the business of the group and to dispose the relevant liabilities, including but not limited to those in relation to the shipbuilding business, in order to ease the debt burden of the group,” it explained.

As at 7 March 2016, 12 bank creditors among 22 have entered into letters of intent with Huarong Energy to subscribe to the shares.

On the supplier creditors side, approximately 10.8% of the total payables of HKD3.6bn attributed to more than 1,000 supplier creditors have entered into letters of intent to subscribe to the shares.

Huarong Energy has also proposed to implement share consolidation on the basis that every five issued and unissued shares of HKD0.10 each in the existing share capital of the company will be consolidated into one share of HKD0.50 each.
Upon completion of the proposed shares transaction, substantial shareholder Zhang Zhirong will see his stake dilute from 18.9% to 2.1%, while three major bank creditors and their designated entities will own 37.2% stake to become the substantial shareholder.

Huarong Energy, however, pointed out that “there will not be any change in control of the company.”