China's Delong issues new convertibles in exchange for RMB 48.9 million restructured convertibles

By Angela McDaniels

Tacoma, Wash., Dec. 10 - Delong Holdings Ltd. said the holders of RMB 48.9 million of its RMB 1,532,000,000 of dollar-settled 5% convertible bonds due 2012 elected to exchange their convertibles for RMB 158.9 million of new dollar-settled 5% convertible bonds due 2012.

The exchange took place on Thursday, and the old convertibles that were exchanged have been canceled, according to a company news release.

The new convertibles are substantially similar to the exchanged convertibles except that:

• There is no restriction on their convertibility;

• They have no scheduled redemptions prior to maturity;

• They have no mandatory conversion feature;

• They do not provide their holders with the right of first refusal with respect to the purchase of shares by the company by any of the purchasers;

• Their terms do not include certain undertakings such as the appointment of a director and a cash sweep mechanism; and

• They will not be listed on any stock exchange.

Bondholders received roughly 3.2091 new convertibles for each old convertible exchanged. They were given the option to exchange their bonds as part of a restructuring of the convertibles first announced in September.

As previously reported, bondholders approved the restructuring of the convertibles at a meeting on Oct. 2, and shareholders gave their approval at a meeting on Nov. 12.

Delong said that uncertainty surrounding the recovery of the global economy had prompted it to reassess its ability to fulfill its obligations under the old convertibles. In particular, it was concerned about the option given to bondholders to put the convertibles back to the company on June 8, 2010 at 109.34% of par.

As part of the restructuring, the coupon on the convertibles was increased to 5% from 0%. The first coupon payment will be made June 30, 2010.

On Nov. 26, the bondholders received an initial cash settlement of RMB 205 million, redeeming about RMB 546.1 million of the convertibles at a 62.5% discount.

The company will redeem another RMB 170.8 million of the bonds on Dec. 31, 2010 at a discount of 20% and RMB 160.7 million on Dec. 31, 2011 at a discount of 15%. The remaining bonds will be redeemed at maturity on June 8, 2012 at par.

Whenever an excess cash account reaches $1 million, the funds will be used to redeem the bonds on a pro rata basis at a discount of 20% up to Dec. 31, 2010, a discount of 15% up to Dec. 31, 2011 and at par after that.

Also on Nov. 26, the company mandatorily converted RMB 205 million of the convertibles into roughly 45.2 million ordinary shares at a conversion price of S$0.9211, which is the weighted average share price of the company from Aug. 17 to Nov. 11.

The shares into which the bonds were converted will not be listed on the Singapore Exchange Securities Trading Ltd. Holders have the option to put back 50% of these shares on each of the fourth and fifth anniversaries of the date of conversion, and Delong can call the shares at a 5% compounded rate from Jan. 1, 2010 to Dec. 31, 2014.

Singapore dollar bonds

In addition, Delong received bondholder and shareholder approval to restructure its S$175 million zero-coupon exchangeable bonds due 2012.

In September, the company said it planned to convert these bonds into 43.75 million shares and $19 million in cash plus net proceeds from the sale of a property owned by King Full Investments Ltd., a company owned by Ding Liguo and Zhao Jing.

Holders will have the right to put 20% of the shares back to the company annually in each of the first six years. After six years and up to 10 years, the company has a call option to request a purchase of the shares.

Delong is a Beijing-based steel manufacturing and trading group.

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