The Carlyle Group will shell out $137 million for convertible bonds (CBs) in Haier Electronics Group and has the option to invest another $57 million when warrants are exercised. The investment combined with other shares Carlyle owns will give the financial sponsor a 9% stake in Haier.
The bonds convert within 18 months at a price of HK$10.67 per share, representing a premium of around 12.43% to the closing price on July 28, the day before the deal was announced. The warrants can be exercised at a premium of 5% to the bond conversion price, translating to a premium of about 18.02% to the July 28 price. The warrants can be exercised any time up to five years from the date of issue. The CBs, once fully converted, plus the warrants, once fully exercised, will give Carlyle a 5.65% stake in Haier.
Carlyle is routing the investment through Carlyle Asia Partners III. It will have the right to nominate one director to Haier’s nine-strong board. Haier said it intends to use the money it is raising from Carlyle to expand its service and distribution capabilities, particularly among third-party product distributors, and tap the growth potential in China’s third- and fourth-tier markets.
Haier is listed on the Hong Kong stock exchange and is a subsidiary of Haier Group, one of China’s biggest makers of washing machines and water heaters. The Haier Group is now concentrating on distribution, logistics and after-sales service across China. It has an extensive distribution network in third- and fourth-tier cities, distributing both Haier and third party-branded home appliances and related products.
“By working with [The Haier Group], we expect to help deliver home appliances of multiple brands to more families, boost China’s domestic consumption and improve people’s quality of life, particularly in the remote western region and the vast countryside,” said Janine Feng, Carlyle’s managing director.
Carlyle has agreed to engage a consultant to help Haier develop its strategy and identify the right people to help it assess opportunities in acquisitions and investments, and strategies to improve processes. Carlyle will also work with Haier on its non-China expansion strategy.