Last week was a week of firsts for Deloitte & Touche Corporate Finance. Fresh from launching its first Chinese IPO, it claims it has pioneered a new convertible structure in Asia.
The deal is for Global Link Cyber International - which will soon change its name to China Biomedical Group. The novel structure is a convertible drawdown, and while commonly used by growth companies in the US, it is the first time it has been used in Hong Kong.
The issuer (Global Link) has signed up for a $30 million equity line. This allows the company to draw down up to $8 million per month interest free, which the investor can then convert into the company’s stock. The conversion takes place at a maximum 8.75% discount to the prevailing market price.
Deloittes agreed to the equity line with fund manager Acqua Wellington - a $2 billion fund staffed by ex-Axa and ex-HSBC structured finance professionals. The line will allow Global Link Cyber International, which is listed on Hong Kong’s main board, to draw down on the $30 million as and when it chooses.
“Mid-cap sized companies are concerned about dilution,” says Lawrence Chia, a Deloitte managing director. “So this structure gives the company the flexibility to draw down on the $30 million when it wants. It is a structure frequently used for hi-tech and biotech companies in the US.”
Acqua Wellington did a lot of due diligence on the company before agreeing to the deal. As is perhaps indicated by the company’s decision to change its name to China Biomedical, it is moving aggressively into Chinese biotech, and obviously Acqua Wellington has a reasonable conviction it will be successful. The company has PRC backers.
Acqua Wellington recently set up a $100 million Asian fund and this is the first deal it has done. Interestingly enough, Deloittes is a co-manager of this fund. In this respect, Deloitte is on both sides of the deal - as the corporate financier, and also as a part of the quasi-private equity group committing the funds.
