Selected deal experience
National Arts Entertainment and Culture Group — creditors' scheme
Worked across disclosure, creditor engagement and financial modelling on the completed restructuring of approximately HK$2.13 billion of creditor claims.
- Geography
- Hong Kong
- Employer
- Oriental Patron Asia Limited
- My role
- Deal team member at Oriental Patron Asia Limited, financial adviser to the Company
Context
National Arts Entertainment and Culture Group Limited (GEM stock code: 8228) was in financial distress and had provisional liquidators appointed by the Supreme Court of Bermuda on 14 June 2019 for restructuring purposes. Its circular dated 20 September 2019 estimated total creditor claims at approximately HK$2.13 billion, subject to final determination by the scheme administrators.
The scale of the immediate liquidity problem was severe. At 30 June 2019, the Group reported approximately HK$1.6 million in cash, HK$1.75 billion in current liabilities and HK$1.50 billion in net current liabilities.
The proposed creditors’ scheme would settle admitted claims without an immediate cash payment:
- 40% through up to approximately 2.25 billion new shares issued at HK$0.38 per share;
- 60% through up to approximately HK$1.30 billion of five-year convertible bonds carrying 1% annual interest and an initial conversion price of HK$0.55 per share; and
- an additional 1% consent bonus, added to the convertible-bond principal, for qualifying creditors who consented by the specified deadline.
Full conversion could require approximately 2.37 billion conversion shares. In the circular’s maximum issuance and full-conversion scenario, existing public shareholders would be diluted from approximately 70.8% to 35.7%. The structure therefore required detailed modelling of claim allocations, conversion scenarios, the enlarged share capital and dilution across existing shareholders, creditors and connected persons.
The scheme required approval from more than 50% of creditors by headcount representing at least 75% of claim value, followed by sanctions from the Hong Kong and Bermuda courts, shareholder approvals, and Stock Exchange listing approval. The circular stated that, upon completion, the new shares and convertible bonds would discharge and extinguish the admitted claims against the Company.
My contribution
I worked on the Oriental Patron deal team. The circular identifies Oriental Patron Asia Limited as the Company’s financial adviser for formulating and overseeing the proposed restructuring.
My work concentrated on three execution-heavy areas:
- Disclosure: I prepared the principal working drafts for most of the Company’s HKEX announcements and circular materials relating to the restructuring. The Company and its directors retained formal responsibility for the disclosures, and the documents went through review by the client, advisers and legal counsel.
- Creditor engagement: The process involved more than 400 creditors. I worked through the creditor list individually, making outbound calls, handling incoming calls and follow-up enquiries, explaining the proposed mechanics and procedural steps, and maintaining the information flow needed to move the process forward.
- Financial modelling: I built most of the models used to size the new-share and convertible-bond consideration, calculate conversion shares, test different claim and conversion scenarios, and show the resulting dilution and post-transaction shareholding structure.
I also supported coordination with the lawyers and counsel. Senior members of the advisory team led the legal and restructuring strategy; my responsibility was primarily the modelling, disclosure and creditor workstreams that turned that strategy into an executable process.
Outcome during my involvement
The creditors’ scheme was implemented in 2020. As recorded in the Company’s completion announcement dated 31 August 2020, on 29 June 2020 the Company allotted and issued 2,155,114,938 new shares and issued convertible bonds with an aggregate principal amount of HK$1,244,876,198.14 to creditors under the specific mandate.
Those issuances put the settlement mechanics described in the 2019 circular into effect: the documented proposal became an implemented settlement through new equity and convertible bonds. The completion announcement also recorded the issue of 250 million fee shares to the financial adviser on 3 August 2020. After the new shares and fee shares were issued, the Company had 7,353,285,390 shares in issue, of which other public shareholders held approximately 66.74%.