Primavera Capital Group has agreed to subscribe to China XLX Fertiliser’s convertible bonds worth approximately USD51 million through a wholly owned subsidiary. The private equity fund will indirectly hold 14.97% of the company’s enlarged capital and become its third largest shareholder and largest institutional investor upon full conversion of the bonds.
The five-year Renminbi-denominated convertible bonds will be issued at face value. They carry an annual coupon rate of 4.5% and interests will be paid on each anniversary of the original issue date of the bonds. Conversion price of the bonds is fixed at RMB 1.84 per share, representing a 13% premium over the weighted average of the volume weighted average price of the Company’s shares traded on the Stock Exchange of Hong Kong and the volume weighted average price of the Company’s shares traded on the Singapore Stock Exchange for the 20 trading days immediately prior to the agreement. Net proceeds of approximately RMB 322 million raised will be used for the development of the fourth urea plant, acquisition of coal resources and as the Group’s general working capital.
Primavera Capital, a leading international private equity firm based in China, was founded by Dr Fred Hu, the former Chairman of Greater China at Goldman Sachs. Equipped with a seasoned investment team, it specialises in mergers and acquisitions, direct investment and growth stock investment. Upon completion of the transaction, Lian Jie, a partner at Primavera Capital and the former managing director of Investment Banking Division at Goldman Sachs (Asia), will be appointed as a non-executive director of the board at the Company. He will get involved in making its major decisions.
"China XLX Fertiliser is the first agricultural and fertiliser company that we invested. We feel very excited to develop a long-term strategic partnership with it. China XLX Fertiliser is one of the best and fastest growing fertiliser companies in China. Its management team possesses considerable experience in the fertiliser sector. They are well known for their dedication, professionalism and credibility in the market. With a well-established corporate culture and stringent corporate governance practices, the Company has maintained a strong track record in business operations and a solid financial position. We are fully confident about its future prospects and our investment in it," says Jie.
Liu Xingxu, the Chairman and CEO of the Company, says: "This funding exercise enables us to diversify our funding channels and secure additional financial resources for future expansion. Moreover, this investment enables the Company to optimize the capital structure and lower the gearing ratio. By introducing an internationally renowned private equity fund as our long-term strategic partner, we can further enhance our shareholder base and corporate governance. The Company is the first investment Primavera Capital made in the domestic agricultural and fertiliser sectors. This clearly demonstrates that the Company is widely recognized in the international capital market for its strong operating performance."
Jie adds: "Agriculture plays a unique and significant role in China’s economic development and is essential for the people’s livelihood. During the period of the ‘Twelfth Five-year Plan’, the government will launch a series of measures to promote the sustainable and healthy development of this sector, thereby ensuring stable food supply for the country. Moreover, the government will also step up efforts to consolidate domestic urea industry in order to eliminate inefficient production capacity, improve competitiveness of domestic producers and reduce overall emissions and energy consumption. China XLX Fertiliser is one of the largest and most cost-efficient urea producers in China. It has an outstanding management team and is taking various measures to boost production capacity and extend its value chain into upstream and downstream. We believe our strategic investment in the Company will not only provide funds for its future growth, but also lay a solid foundation for its long-term growth through enhanced operating efficiency. Primavera Capital will leverage its resources in the industry and extensive experience in domestic and overseas capital markets as well as mergers and acquisitions to help the Company reinforce its capital structure and identify acquisition targets. We are confident that our cooperation will create a win-win situation for both sides."
Xingxu says: "By combining Primavera Capital’s substantial experience in the capital market and our strengths in operation and management, we can fully utilise our fund-raising channels and enhance our operating efficiency, leading to a substantial improvement in our competitive edges and robust growth of our businesses. We sincerely hope both sides will benefit from this strategic partnership in the long term."
