China Gas wraps $40 million convertible bond offering; oil companies back in PIPE game

By Sheri Kasprzak

Atlanta, June 27 - As energy companies responded to new record-high oil prices, Hong Kong-based China Gas Holdings Ltd. led private placement news with its $40 million convertible bond offering.

China gas sold 400 bonds at $100,000 each to two institutional investors.

The bonds mature June 29, 2010, bear interest at 1% annually and are convertible into 180,242,634 common shares at HK$1.731 each.

The company, which invests in and operates natural gas properties, intends to use the proceeds from the offering for investments, the repayment of debt and working capital.

After the offering was announced Monday morning, China Gas's stock dropped HK$0.08 to end at HK$1.33.

Elsewhere, record-high oil prices lured some energy companies back into the PIPE market Monday. As the week started, oil prices continued to climb, reaching new records. Oil settled up $0.70 to end at $60.54 per barrel.

Two Canadian oil and natural gas exploration companies priced significant offerings Monday.

The biggest, from Calgary, Alta.-based Paramount Resources Ltd., included the sale of 1.9 million flow-through shares at C$21.25 each for proceeds of C$40,375,000.

The deal, which is scheduled to close July 14, is being placed through a syndicate of underwriters led by FirstEnergy Capital Corp.

After the offering was announced Monday morning, Paramount's stock climbed C$0.14 to end at C$17.24.

"Certainly, the private placement they're doing helped, but oil in general was way up, so that accounts for [the gains] too," said one market source who saw the Paramount deal. "Pricing looks strong."

Paramount plans to use the proceeds for exploration.

The second offering, this one from Vancouver, B.C.-based Tanganyika Oil Co. Ltd., calls for the sale of up to 5 million shares at C$7.60 each for C$38 million in proceeds.

Tanganyika's stock closed unchanged at C$8.00. That offering was announced late Monday.

The proceeds from that deal will be used for developing projects in Egypt and Syria. The remainder will be used for general corporate purposes.

In the broad market, a few sell-siders agreed that volume in general picked up Monday and noted that PIPE issuance may see a spike this summer and into the fall.

"Oil prices really do affect more than just oil," said one market source. "I think you'll find other types of companies coming out with offerings in the near future, even though they have no direct connection to oil."

That sell-sider pointed to the retail sector, which is often impacted adversely in terms of sales when oil prices climb. He noted that retail companies may head to the private placement market in search of quick capital infusions once limited sales hurt their balance sheets.

"We're really already seeing it," he said.

Another sell-side source said he feels that the low PIPE volume seen in the first half of this year may be offset by lots of volume in the later part of the year.

"We're [expecting] things to pick up this summer, and especially this fall, particularly after the light flow we've seen during the first half of the year," said that market source.

"I'd agree with that," said a third sell-sider. "[But] I think a lot of it depends upon market conditions, which have been less than great here lately. So it's really hard to come out and say we're going to see this incredible burst of deals later this year, but I think it's likely. It depends on several factors, like where oil goes from here and how stocks respond to it."

Bluefly raises $7 million

Moving back to retailers, Bluefly Inc. wrapped up a $7 million private placement of convertible preferred stock, the New York-based online apparel company said.

The preferreds are convertible into common shares at $2.32 each. The conversion price represents at 5% premium to Bluefly's closing stock price at the time the deal was signed.

HPC Capital Management LLC was the placement agent.

The investors will also receive warrants for 600,000 shares, exercisable at $2.87 each for three years.

The proceeds will be used for a marketing campaign.

"Over the past 18 months, Bluefly has achieved impressive growth by revamping our merchandising strategy and resetting our margin structure," said company chief executive officer and president Melissa Payner-Gregor in a statement. "As a result of this success, Bluefly now has the opportunity to accelerate growth by launching a full-scale marketing campaign. Having recently completed a comprehensive customer and prospect analysis, we are poised to use the capital infusion to focus firmly on customer acquisition."

After the closing was announced Monday morning, Bluefly's stock took a hit, falling $0.29, or 13.24%, to close at $1.90.

Aeolus raises $2.5 million

Heading to the biopharmaceutical sector, Aeolus Pharmaceuticals Inc. said it has received agreements for up to $2.5 million in a private placement.

The company plans to sell convertible preferred stock to institutional investors.

The preferreds pay annual dividends at 6% and are convertible into common shares at $1.00 each.

The investors will receive one warrant for each preferred share purchased. The warrants are exercisable at C$1.00 each for five years.

"Aeolus has developed and tested approximately 200 proprietary catalytic antioxidant compounds over a 10-year period," said Brian Day, the company's co-founder, in a statement. "This capital infusion will now allow us to accelerate our internal pipeline initiative to select and initially test between six and 12 of the most promising compounds in animal models of relevant central nervous, autoimmune, respiratory and oncology diseases and disorders."

Research Triangle Park, N.C.-based Aeolus is focused on the development of treatments for Parkinson's disease, autoimmune disorders, tumors, chronic obstructive lung disease and stroke. The proceeds will be used for animal testing and the development of pipeline compounds.

The company's stock dipped $0.10, or 17.86%, to close at $0.46 after the deal was announced Monday morning.

PhotoChannel raises C$1.5 million

In the tech sector Monday, PhotoChannel Networks Inc. closed a C$1.5 million offering of units.

The company issued 18.75 million units at C$0.08 each.

The units consist of one share and one half-share warrant. The full warrants allow for the purchase of an additional share at C$0.12 each for one year.

"This small financing strengthens the company's balance sheet, as it continues discussions with world-class retailers for the use of its online solution," said PhotoChannel's chief executive officer and chairman, Peter Fitzgerald, in a statement. "The funds will be used to accelerate sales and marketing, launch PhotoChannel's new digital media platform and for general working capital. We would like to thank Discovery Capital [Corp.] for their continued support and belief in PhotoChannel."

Based in Vancouver, B.C., PhotoChannel provides online image printing and picture messaging services to photo-finishing retailers and wireless carriers.

The company's stock gained C$0.005 to close at C$0.09 Monday.

Northern Energy's stock drops

After pricing a C$36 million private placement late Friday, Northern Energy & Mining Inc.'s stock took a dive on Monday.

The company's stock slid C$0.20, or 11.76%, to close at C$1.50.

After the deal was first announced Friday, the company's stock closed unchanged at C$0.17.

The Vancouver, B.C.-based coal exploration company said it plans to sell units of one share and one half-share warrant at C$1.80 each.

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