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China Agri-Industries, an agribusiness and food processing company, is planning to raise up to HK$4.49 billion ($579 million) from a rights issue. It will use the money to pay for the possible redemption of a convertible bond and as general working capital.
The company, which is a member of the Cofco Group, processes and sells oilseeds, biochemical and biofuel, rice, wheat and brewing materials. Cofco is the biggest supplier of diversified products and services in the agricultural products and food industry in China.
Up to 57.9% of the offering will be bought by its parent company, Cofco (HK), which will also underwrite the rest of the deal.
China Agri-Industries announced late on Monday that it will issue at least 1.21 billion rights shares at a subscription ratio of three rights shares for every 10 existing shares held by qualifying shareholders. If all the company’s outstanding share options and convertible bonds are exercised before offering, the number of rights shares will increase to 1.32 billion. The amount needed for the possible redemption of the convertible bonds is projected to be about HK$4.01 billion, it said.
The subscription price has been set at HK$3.39 per rights share, which represents a discount of 31.4% versus Monday’s closing price of HK$4.94 (the last closing price before the deal was announced). It also translates into a 26% discount to the theoretical ex-rights price (Terp) of about HK$4.58 per share, which is also based on the pre-announcement closing price.
The stock fell 5.9% yesterday to HK$4.65, taking its year-to-date decline to about 21%. By comparison, Hong Kong’s Hang Seng Index lost 0.3% yesterday but is up about 19% so far this year.
The record date for the rights issue will be November 30. As the proposed offering will not increase the issued share capital or the market cap of the company by more than 50%, it does not need approval from existing shareholders, according to the announcement.
The maximum number of rights shares would represent about 32.8% of the issued share capital of the company as of Monday.
Cofco (HK), which owns about 57.9% of China Agri-Industries directly and through a couple of wholly owned subsidiaries, will buy 700.9 million rights shares worth about HK$2.38 billion. If China-Agri issues the minimum number of shares, this will represent Cofco (HK)’s full entitlement.
The agribusiness company said it will be favourable to its development in the long run and in the interest of both the company and its shareholders to proceed with the rights issue at a reasonable price to further strengthen its capital base and optimise its capital structure.
For the six months ended June 30 this year, the company booked a 24% rise in revenues to HK$41.7 billion from the same period last year, which it attributed to an expansion of production capacity in prior years.
But due to the challenging global economic environment and stiff industry competition, it said it was not able to fully pass on the increase in raw material prices to customers. It ended up posting a 69% year-on-year drop in net profit for the period to HK$502 million.
China Agri-Industries listed on the Hong Kong stock exchange in 2007.
The shares will start to trade ex-rights on November 26 and shareholders who don’t want to exercise their rights can trade them in the market between December 5 and 12. The subscription period will end on December 17.
J.P. Morgan is a financial adviser to China-Agri with regard to the rights issue.
