Selected deal experience
Prosperity International Holdings — rights issue
Worked on the transaction structure and financial modelling for a non-underwritten rights issue of up to approximately HK$66.3 million.
- Geography
- Hong Kong
- Employer
- Oriental Patron Asia Limited
- My role
- Worked principally on structuring the rights issue and building the financial models used to develop and test its terms.
Context
Prosperity International Holdings (H.K.) Limited (Hong Kong stock code: 803) proposed a non-underwritten rights issue on the basis of two rights shares for every five existing shares, at a subscription price of HK$0.13 per rights share. The maximum issue size was 509,723,200 rights shares, representing approximately 40.0% of the Company’s then-issued share capital and 28.6% of the enlarged share capital if fully subscribed.
The structure could raise gross proceeds of approximately HK$66.3 million and estimated net proceeds of approximately HK$62.3 million. It included a minimum-proceeds condition of HK$30 million. Unsubscribed rights shares were to be offered to independent placees on a best-efforts basis.
The fundraising addressed a material near-term financing requirement. At 28 February 2019, the Group reported approximately HK$1.86 billion of outstanding debt, including approximately HK$1.73 billion due within the following 12 months. The intended use of the maximum net proceeds was HK$40 million for general working capital and approximately HK$22.3 million for partial repayment of maturing debt and related interest.
Oriental Patron Asia Limited was appointed as financial adviser to the Company and as bookrunner and placing agent for the unsubscribed rights shares.
My contribution
I worked principally on the structure of the transaction and the financial modelling behind the proposed terms. My work included:
- Deal structure: I worked through the rights ratio, subscription price, issue size, minimum-proceeds condition, non-underwritten basis and placing mechanism for unsubscribed rights shares.
- Financial modelling: I built models to test subscription and placement scenarios, gross and net proceeds, the enlarged share capital, shareholder dilution and the resulting shareholding structure.
- Term development: I used those models to assess how the proposed terms interacted with the Company’s funding requirement and the mechanics of the rights issue.
Published structure
At the maximum issue size, the prospectus showed up to 1,784,031,202 shares in issue after completion. It also disclosed an estimated dilution effect of approximately 20.4% for an existing shareholder who did not participate, based on the stated theoretical ex-rights price.