Pacific Basin raises $123.8 million from six-year CB

The Hong Kong-headquartered dry bulk shipping company prices the deal with a 27.5% conversion premium.
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A handymax-sized bulk carrier
<div style="text-align: left;"> A handymax-sized bulk carrier </div>

Pacific Basin Shipping has raised $123.8 million from the sale of a six-year convertible bond to help expand its fleet.

The CB has a six-year maturity with an investor put in the fourth year. It was offered with a coupon ranging from 1.375% to 1.875% and a conversion premium of 27.5% to 35%.

The deal resulted in a 1.875% coupon and a 27.5% premium over Thursday’s HK$3.89 closing price. The premium translates into an initial conversion price of HK$4.96 a share. The initial conversion price range was between HK$4.96 and HK$5.25.

It attracted robust demand — close to 50 investors took part, with about two-thirds coming from outright investors and the remaining third from hedge funds, a source said on Friday. They were roughly evenly split between Asia and Europe, the person noted. The deal was launched at 5pm on Thursday, and the books were closed at 8pm.

As it was the third CB that Pacific Basin has done, after the ones in 2007 and 2010, CB investors are very familiar with the name, the source said. The company was listed in Hong Kong in 2004.

The CB will be convertible, based on full conversion at the initial conversion price, into about 193.5 million shares, representing about 10% of the issued share capital, the company said in a statement.

The bonds were marketed with a credit spread of 475bp over Libor, a stock borrow cost of 40bp and a conversion price adjustment for all cash dividends. The final terms gave a bond floor of 87.5% and an implied volatility of around 25%.

After the transaction, Pacific Basin’s stock finished Friday’s trading down 5.4% at HK$3.68. But the stock has gained about 20% since the start of the year, compared to a 12.5% rise on the Hang Seng Index during the same period. The Hang Seng inched up 0.7% on Friday.

As the stock markets remain volatile on worries about the eurozone debt crisis and a slowdown in the global economy, observers have noted that block trades and CBs seem to be an attractive method of raising funds lately.

Pacific Basin is one of the world’s leading owners and operators of modern handysize and handymax dry bulk vessels, according to the company. It says its fleet, including new builds on order, comprises more than 230 vessels directly servicing blue-chip international customers.

“This bond issue represents an opportunity for us to access the convertible market on attractive terms, and will raise immediate funds which we intend to use primarily to acquire additional handysize and handymax vessels as well as for general working capital purposes,” Mats Berglund, chief executive officer of Pacific Basin, said in a separate statement on Thursday.

Pacific Basin said it regularly uses three external sources of capital — equity, convertible bonds and bank loans.

Goldman Sachs was the sole bookrunner for the deal.

Pacific Basin expects handysize freight rates will remain range-bound over the second half, and be weaker overall in 2012 than in 2011 due to capacity expansion, slower Chinese growth and uncertainty in global trade, according to the company’s 2012 interim report in August.

But it expects protracted dry bulk market weakness and significant contraction in funding will generate opportunities for cash-rich ship owners, and the company said it will selectively capitalise on dry bulk fleet expansion opportunities at the right time and price.

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