China Nickel Resources has launched an exchange offer to refinance its existing 10 percent convertible bonds. This is its second CB exchange offer in less than two years.

 

The Hong Kong-listed steel producer is inviting bondholders of the outstanding CBs, which will mature in December 2012, to exchange them for a fresh issue consisting of new CBs and high-yield bonds.

 

The existing CBs, which were issued in October 2010 to refinance the put option of the company’s original CB issued in 2007, have an outstanding principal amount of HKD1.33 billion(USD171 million).

 

The company is proposing to exchange 75 percent of the principal value into three-year senior secured bonds with a coupon of 10 percent, while 25 percent of the principal amount will be exchanged to new CBs carrying a coupon of six percent and initial conversion price of HKD0.7834. The conversion price, which represents a premium of 26.5 percent to the stock’s closing price of HKD0.62 on May 8 2012, comes with a reset on December 12 2012, when the conversion price will be adjusted down to no less than 75 percent of the initial conversion price, if China Nickel shares remain consistently below the then prevailing conversion price.

 

The holders of the existing CBs will also get paid the accrued and unpaid interest on the bonds in cash.

 

The firm is also proposing to make some amendments on the existing CBs, in case they do not get exchanged in full. These amendments, which include the extension of the CBs’ maturity date to March 12 2012 from December 2012; deletion of the conversion right attached to the existing CBs; and the reduction of the final redemption amount to 100 percent of the principal value from 131.1699 percent -- making the existing CBs unattractive to hold -- giving enough incentives to the CB holders to accept the exchange offer.

 

The exchange offer will expire on May 29. The shareholders of China Nickel will need to approve the new CB issuance in an extraordinary general meeting on May 28 for the exchange offer to be completed.  The CB holders will vote on the proposed amendments on the existing CBs at a separate meeting on May 31.

 

J.P Morgan is arranging the consent solicitation offer.