China Direct funds acquisitions; Kinder Morgan cuts debt; Hillsborough closes deal

By Kenneth Lim

Boston, Feb. 12 - China Direct Inc. sold $12.95 million of convertible preferred stock and warrants to fund its strategy of acquiring businesses in China.

Meanwhile, Kinder Morgan Energy Partners LP announced plans to sell $60.1 million in common stock in a direct transaction.

Hillsborough Resources Ltd. closed its C$9.6 million offering of five-year convertible debentures but said the deal size was reduced by C$400,000 to avoid having to seek shareholder approval.

Spacehab Inc. also received a $5.5 million investment through a placement of convertible preferred stock just days after the company established a $6 million credit facility.

China Direct wary of debt

China Direct said it hopes the $12.95 million of convertible preferred stock and warrants that it sold to a group of institutional investors will help it to enhance returns without taking on too much debt.

"We didn't want to do anything with debt," executive vice president Richard Galterio told Prospect News. "The company historically has a very low debt threshold, and with the gyrations in the marketplace it's difficult to do a secondary offering as well."

China Direct said it sold the securities to a group of institutional investors that includes funds managed by Liberty Harbor Master Fund I LP, Hudson Bay Capital Management LP and Whitebox Advisors LLC.

The securities comprise 8% convertible preferred stock convertible into China Direct common stock at a conversion price of $7 per common share. The warrants are exercisable into common shares at $8 per share with a five-year maturity.

China Direct, a Boca Raton, Fla.-based management and consulting company that focuses on investing in Chinese companies, said it will use the proceeds to pursue acquisitions in China.

"We are extremely pleased that these particular institutions have invested in the future of our company in such a challenging market environment," company president Marc Siegel said in a press release.

"It is our intent to deploy these funds on additional acquisitions in China. After the initial success of our first acquisitions in China, the broad acceptance of our model has led to an overwhelming increase in the number and quality of potential candidates. We are confident that with this new equity infusion our company has never been in a better position to swiftly capitalize on this opportunity as we continue to accelerate our revenues and earnings in 2008 and beyond."

Galterio said Whitebox is an existing shareholder of the company. Discussions with Liberty Harbor and Hudson Bay had been going on for "a number of months in conjunction with Roth Capital as the placement agents of the deal," he added.

"We've been talking for a while with these institutions, and we felt that a palatable alternative to us was a deal that allows us to add capital without having to go to the market again later. This allows us to expand and make creative acquisitions, and if we can make a higher return on equity with the preferred stock and the warrants, that's what we'll do."

China Direct currently has significant positions in the production and distribution of magnesium and is looking to grow its presence in that segment.

"The companies we own are among the top few in the world in terms of overall manufacturing and distribution capacity," Galterio said. "We have announced our intent to acquire to add capacity."

The company also plans to continue acquisitions in the zinc mining sector, he said.

China Direct has no current obligations to any of the investors to put seats on its board, Galterio said.

"But we certainly hope in the future that these funds, now that they are shareholders, will continue to be supportive of the company," he said. "Along those lines, in these difficult times for the markets, we're very happy that this caliber of institutions has chosen to make investments in our company. We're excited to have them as shareholders in our company and we certainly hope that they continue to remain shareholders."

Kinder Morgan to retire debt

Kinder Morgan said it will sell $60.1 million of common units directly to investors to retire short-term debt.

The 1.08 million units under the deal will be sold at $55.65 apiece, according to the Houston-based petroleum pipeline company in a 424B2 filing with the Securities and Exchange Commission on Tuesday.

"We will use virtually all of the net proceeds of this offering to repay short-term commercial paper debt," the company said in its prospectus supplement. "As of Feb. 8, 2008, the weighted average interest rate on the short-term commercial paper debt to be retired was approximately 3.46% and our outstanding commercial paper balance was approximately $735.7 million."

Kinder Morgan said it will sell the units to investors in a privately negotiated deal without involving underwriters.

Hillsborough downsizes placement

Hillsborough Resources said it completed its earlier-announced C$9.6 million placement of secured convertible debentures to MinQuest Capital Inc.

The deal was originally set for C$7 million on Oct. 17 and was upsized on Jan. 17 to C$10 million.

But Hillsborough, a Vancouver, B.C.-based coal mining company, said the final deal amount was reduced by C$400,000 to enable it to be completed without shareholder approval.

The five-year debentures are convertible at an initial conversion price of C$0.60 per common share and bear an annual interest rate of 10%. They are provisionally callable after two years.

Hillsborough said the proceeds of the deal will be used to increase output at its Quinsam mine, to maintain its equity stake in the Peace River Coal Partnership, to develop its Wapiti thermal project and for general corporate purposes.

"We are delighted with the response to the offering which was oversubscribed," Hillsborough president and chief executive David Slater said in a statement. "Demand for our coal is well in excess of what we can provide. We are very optimistic about exploration and development opportunities in our properties and joint venture interests. Demand for quality thermal and metallurgical coal is at an all time high, and we intend to put ourselves in an optimal position to meet demand as it arises."

Spacehab seeks more cash

Spacehab said it is selling $5.5 million of convertible preferred stock in a private placement just days after the company took on a $6 million credit facility with Green Bank, NA.

The Webster, Texas-based company provides space services to the public and private sectors.

The latest deal comprises 55,000 series D convertible preferred shares sold at par of $100 each. The preferreds are convertible into the common stock at a conversion price determined by taking the average of the Jan. 18 to Jan. 25 average closing common share price and the average of the five-day closing price for the common stock before the company receives notification from the National Aeronautics and Space Administration that indicates it will receive at least $120 million under the Commercial Orbital Transportation Services program.

That notification is expected to arrive mid-February, and the placement is contingent upon the award of that money.

Spacehab said Feb. 8 that it took a three-year $4 million term loan and a $2 million revolver from Green Bank.

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