Disposal and Issue of Bonds and Warrants

RNS Number : 2966G

Green Dragon Gas Ltd

04 June 2013

 



5 June 2013

GREEN DRAGON GAS LTD

 ("Green Dragon" or the "Company")

US$100 million Cash Raised

to Fund Upstream Growth and Repay Convertible Bonds

The Board of Green Dragon Gas Ltd. (AIM:GDG), one of the largest independent upstream companies involved in the production of CBM gas in China, is pleased to announce that it has received US$100 million in cash from the following transactions:

·    The sale of the non-core wholesale gas distribution business for a cash consideration of US$65 million, monetising a 15% IRR

·    US$35 million raised through the issuance of 7% secured bonds together with the issue of 13,675,000 warrants to subscribe for new ordinary shares in the Company at an exercise price of 197.216 pence per ordinary share for up to an additional £27 million (US$42 million) in exercise proceeds

Non Core Asset Sales

In line with the Company's Strategic Review announced on 21 May 2013, Green Dragon has entered into a sale and purchase agreement with Mandolin Capital Pte. Ltd. ("Mandolin Capital") for the sale of the Company's 29.11% effective interest in Beijing Huayou United Gas Development Co., Ltd ("BHY") and its 100% interest in Giant Power International Investment Limited ("GPI") which included the Company's interests in the wholesale gas distribution pipeline network in the Beijing Development Area and the wholesale gas stations in Zhengzhou and Wuhu, for a cash consideration of US$65 million (the "Sale").

Whilst BHY and GPI had been steadily growing, profitable, debt free and dividend paying businesses, they added no accretive value to Green Dragon's core upstream business. Like many listed companies within the wholesale gas distribution business, these businesses will provide a low to mid-teen yield (compared with upstream yields which are materially higher) and as a result, the Company had decided to divest the wholesale gas business to focus on the higher margin upstream business.

The Company acquired BHY in 2007 for US$27.1 million and GPI in 2008 for US$10.8 million; these investments had book values of US$30.6 million and US$8.9 million respectively at 31 December 2012. The consideration for the sale of BHY and GPI represents a 65% premium to the book value of the investment with an IRR of 15% on the investment since inception. In the year ended 31 December 2012, BHY generated profit before tax of US$10.5 million on turnover of US$109.5 million and GPI generated a loss of US$61,000 on turnover of US$10.3 million.

Bond

Green Dragon is also pleased to announce that it has raised US$35 million through the issuance of a secured bond to Mandolin Capital (the "Bond"). The Bond carries a 7% coupon, payable semi-annually, and has a final maturity date of 3 December 2014. The Bond is secured, unsubordinated and non-convertible.

Warrants

In connection with the Bond, the Company has also issued 13,756,000 warrants to Mandolin Capital to subscribe for new ordinary shares in the Company (the "Warrants").

The Warrants are exercisable at an exercise price of 197.216 pence per ordinary share and are exercisable at any time up to and including the date of maturity of the Bond.  

Use of Proceeds

The Company intends to use the net proceeds of the Sale and the Bond to repay all previously outstanding convertible bonds, being an amount of US$84.2 million in principal plus accrued interest, and for the balance of net proceeds to be used for capex and general working capital purposes.

The Company had previously announced its intention to repay all outstanding convertible bonds by 10 June on 21 May 2013. 

Related Party Transactions

Mandolin Capital is, directly and indirectly, interested in 18.19% of the Company's issued share capital. Under the AIM Rules for Companies ("AIM Rules") Mandolin Capital is, therefore, deemed to be related party of the Company and the Sale, and the issue of the Bond and the Warrants are related party transactions pursuant to Rule 13 of the AIM Rules. The directors of Green Dragon consider, having consulted with Smith & Williamson Corporate Finance Limited in its capacity as the Company's nominated adviser, that the terms of the Sale, the Bond and the Warrants are fair and reasonable insofar as the shareholders of Green Dragon are concerned.

Randeep S. Grewal, Founder and Chairman of Green Dragon, commented:

 "I am very pleased to report our successful execution of the strategic plan objectives announced previously. Whilst we had three specific options in achieving this objective, the board's decision was on taking the path of expediency and certainty. This decision resulted in picking the option to conclude this transaction as a package allowing for the immediate focus on monetising our vast audited CBM (Coal Bed Methane) reserves as the core value of the Company.

In this transaction, we achieved three key objectives; moving the Company towards becoming a  focussed E&P growth business, paid off the maturing convertible bonds and accreted drilling capital to continue the drilling of additional LiFaBriC wells in our GSS gas production block. Additionally, the Sale monetised a 15% IRR since inception on the investment.

We are now  focussed on drilling LiFaBriC wells in GSS and concluding their applicability within the exploration programs on our other five large CBM blocks. GSS and a majority of our blocks have last month had a ten year contract anniversary leaving an additional 20 years under the current agreements for gas production. In consideration of the long reserve life of each LiFaBriC well, we are eager to drill as quickly as we can across all six blocks for maximum gas production within this period."

For further information on the Company and its activities, please refer to the website at www.greendragongas.com or contact:

Stephen Hill, VP Corporate Communications Green Dragon Gas	[phone]
Dr Azhic Basirov / David Jones Smith & Williamson - Nomad & Broker	[phone]
Steve Baldwin / Nicholas Harland Macquarie Capital (Europe) Limited - Broker	[phone]
Richard Crichton / Andy Crossley Peel Hunt - Broker	[phone]
James Henderson / Phillip Dennis Pelham Bell Pottinger - Investor Relations	[phone]

 

END

 

 

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