Biostime taps dollar bond to fund CB tender

Chinese infant formula manufacturer is looking to make its debut international bond offering to partially finance the repurchase of its outstanding convertible debt.

Chinese baby formula manufacturer Biostime International plans to restructure its balance sheet through a tender offer of its outstanding HK$3.1 billion ($400 million) convertible debt and a new Reg S/144A senior bond issue, the company said on Monday.

The move is taking place after the company spent A$1.4 billion ($992 million) last year acquiring a controlling 83% stake in Swisse Wellness, the Australian health supplements and vitamins company. Biostime’s cash and cash equivalents was down 64% year-on-year to Rmb1.2 billion ($183 million) as of the end of 2015.

The company aims to take advantage of the relatively low interest rate environment to raise debt financing through a new senior bond offering. It has mandated Goldman Sachs as the sole bookrunner for the upcoming dollar bond issue, marking its first foray into the international bond market.

Moody's said Monday that it has assigned a provisional Ba3 rating to Biostime's proposed dollar bond, equivalent to three notches below investment grade.

The provisional rating is one notch lower than Biostime's Ba2 corporate family rating because the dollar bond will be subordinated to a $450 million three-year senior term loan that the company took out last year as part of the financing package for Swisse Wellness's acquisition, according to Moody's.

CB tender

Proceeds from the dollar bond issue will be used to fund the cash tender offer for Biostime's outstanding five-year, zero coupon convertible bond due 2019.

Biostime is hoping to save some payments before the put option attached to the convertible note becomes exercisable in February next year, a person familiar with the company told FinanceAsia. According to the terms, bondholders are eligible to sell the bond back to the company at 108.94%.

And it appears very likely that bondholders will exercise the option given that the bond is deeply out of the money. The bond’s strike price was set at HK$90.84, while the price of Biostime’s Hong Kong-listed shares closed at HK$24.6 on Monday.

In the tender offer Biostime is offering to buy back the convertible notes at 105.5% to 107.5% of their face value, implying that it could save at least 144 basis points by buying them back early.

For bondholders, the tender offers an opportunity to cash out nine months early and invest in other, higher yielding debt instruments, including Biostime’s upcoming dollar bond issue.

The tender will be done through a modified Dutch auction, which means Biostime will have the sole discretion on the final offer price as well as the amount of bonds to be repurchased. The offer will close on June 15.

Biostime’s convertible debt was indicated at 102.25% last Friday and bond traders said it surged to a bid/ask of 105.5%/107.5% by the end of trading on Monday as a result of the tender offer announcement.

Goldman Sachs is the dealer manager while HSBC, which arranged Biostime's convertible bond sale in 2014, is the tender agent of the tender offer.

¬ Haymarket Media Limited. All rights reserved.
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