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Kingsway International Holdings Limited Announces Amended Terms to its Issued Convertible Debentures

^{Published on 2010-12-08 20:01:54 - Market Wire}
 

HONG KONG, Dec. 8 /CNW/ - Kingsway International Holdings Limited (the "Company") (TSX: KIH), an Asian-based financial services firm, announces proposed amendments to the terms and conditions of its convertible redeemable unsecured debentures that were issued on September 19, 2008 for an aggregate principal amount of $7,500,000 bearing an interest rate of 9% per annum (payable semi-annually), maturing on September 19, 2011 (the "Debentures"). Subsequent to its issuance the Company had redeemed a portion of the Debentures and $7,000,000 in principal amount remains outstanding as at the date hereof.

Subject to TSX approval, the Company proposes to amend the terms and conditions of the Debentures as follows: (a) the Debentures would bear an interest rate equal to 1% per annum (reduced from 9% per annum); (b) the Debentures would be convertible at the holder's option into shares at the conversion price of $0.55 per share (reduced from $0.80 per share); (c) the Debentures will be redeemable at the Company's option into shares at the redemption price of $0.55 per share (reduced from $0.80 per share) if the 20-day volume weighted average price of the shares listed on the TSX exceeds $1.10 per share (reduced from $1.60 per share). If the daily trading volume of shares in each of the previous 20 consecutive trading days prior to the redemption date equal or exceed 10% of the aggregate number of shares to be issued upon redemption of the principal amount (together with accrued and unpaid interest) on a cumulative basis, then the Company may satisfy its obligation to make the redemption payment by delivering that number of shares equal to the amount due divided by $0.55 per share (reduced from $0.80 per share) and that number of shares equal to the accrued interest thereon divided by: (a) $0.55 per share (reduced from $0.80 per share), if the market price of the shares at the time of redemption is equal to or less than $0.69 per share (reduced from $1 per share), or (b) by the market price immediate prior to the redemption date less the maximum discount allowed by the TSX if the market price of the shares exceeds $0.69 per share (reduced from $1 per share); and (d) the maturity date would be September 19, 2013 (extended by two years from September 19, 2011).

The total issued and outstanding number of the Company's shares was 90,339,265 as of November 17, 2010.  Prior to the Company's application to the TSX in connection with the proposed amendments to the terms and conditions of the Debentures, the Company's shares last traded on the TSX on August 30, 2010 at a price of $0.65 per share, but due to limited trading activity, based on a 20-day average of closing prices and average bid/ask prices, the Company considers the market price to be approximately $0.69 per share as of October 6, 2010. Subsequently, the Company's shares last traded on the TSX on November 26, 2010 with a closing price of $0.55 per share.

Dr. Jonathan Koon Shum Choi currently beneficially owns, directly and indirectly, 61,697,310 shares, approximately 68.30% of the total issued and outstanding shares, and Mr. Michael Koon Ming Choi (a joint actor with Dr. Choi) currently beneficially owns, directly and indirectly, 106,937 shares, approximately 0.12% of the total issued and outstanding shares.

Prior to the proposed amendments of the terms and conditions of the Debentures, at the original conversion price of $0.80 per share, upon conversion of Dr. Jonathan Koon Shum Choi's Debenture with $4.5 million in principal amount, 5,625,000 shares would have been issuable, and upon conversion of Mr. Michael Koon Ming Choi's Debenture with $1.5 million in principal amount, 1,875,000 shares would have been issuable. The total 7,500,000 shares that would have been issuable upon conversion (prior to the proposed amendments) would have represented approximately 8.30% of the total 90,339,265 issued and outstanding shares, and together with the current shareholdings of Dr. Jonathan Koon Shum Choi and Mr. Michael Koon Ming Choi, such shares would have represented approximately 70.83% of the then enlarged total issued and outstanding shares of the Company on a non-diluted basis.

Upon conversion of the Debentures at a new conversion price of $0.55 per share with a principal amount of $7,000,000, the total number of shares issuable would be 12,727,273 (approximately 3,977,273 additional shares being issuable), which represents a dilution factor of 14.1%. With a reduced conversion price of $0.55 per share, upon conversion of Dr. Jonathan Koon Shum Choi's Debenture with $4.5 million in principal amount, he would beneficially own 69,879,128 shares and approximately 70.93% of the then enlarged total issued and outstanding shares, and upon conversion of Mr. Michael Koon Ming Choi's Debenture with $1.5 million in principal amount, he would beneficially own 2,834,210 shares and approximately 3.05% of the then enlarged total issued and outstanding shares. Upon conversion of both these two Debentures together, Dr. Jonathan Koon Shum Choi and Mr. Michael Koon Ming Choi would beneficially own 72,713,338 shares and approximately 71.82% of the then enlarged total issued and outstanding shares. After such conversion, Dr. Jonathan Koon Shum Choi would remain the largest controlling shareholder of the Company and there would be no effect on the control of the Company.

With a reduced redemption price of $0.55 per share, upon redemption by the Company (by paying in shares), a maximum total of 13,221,021 shares, which represents a dilution factor of 14.6%, would be issuable on the maximum total of $7,271,562 ($7 million principal plus the maximum interest payable for any six-month period), and Dr. Jonathan Koon Shum Choi's Debenture with $4.5 million in principal amount and a maximum interest payable of $4,674,575, he would beneficially own a total of 70,196,538 shares and approximately 71.02% of the then enlarged total issued and outstanding shares, and upon redemption by the Company (by paying in shares) of Michael Koon Ming Choi's Debenture with $1.5 million in principal amount and a maximum interest payable of $1,558,192, he would beneficially own a total of 2,940,013 shares and approximately 3.16% of the then enlarged total issued and outstanding shares.  After such redemption, Dr. Jonathan Koon Shum Choi would remain the largest controlling shareholder of the Company and there would be no effect on the control of the Company.

The Company and holders of the Debentures have proposed to amend the terms of the Debentures to strengthen the general working capital of the Company by reducing its interest rate exposure in consideration for a corresponding reduction in conversion price of the Debentures.

The TSX requires the Company to obtain shareholder approval from a majority of holders of shares at a duly called meeting of shareholders because the shares issuable as a result of the adjustment to the conversion price of the Debentures from $0.80 to $0.55 per share represents a private placement (the "Private Placement") to an insider of the Company for shares or entitlements to shares greater than 10% of the number of shares of the Company that are outstanding, on a non-diluted basis, during any six month period, and such shareholder approval must be obtained prior to the date of closing of the Private Placement.  At a conversion price of $0.55 per share (reduced from $0.80 per share), Dr. Jonathan Koon Shum Choi (with $4,500,000 principal amount) and Mr. Michael Koon Ming Choi (a joint actor) (with $1,500,000 principal amount) would receive a total of 10,909,091 shares (or a maximum total of 11,332,304 shares upon redemption by the Company by paying in shares including the maximum interest payable for any six-month period).  Since Dr. Jonathan Koon Shum Choi, who is a director, insider and controlling shareholder of the Company, acquired 8,000,000 shares on June 3, 2010 through a private placement, the additional 10,909,091 shares (or 11,332,304 shares including the maximum interest payable in shares upon redemption) and the 8,000,000 shares would total 18,909,091 shares (or 19,332,304 shares including the maximum interest payable in shares upon redemption) and would represent 23.0% (or 23.5% including the maximum interest payable in shares upon redemption) of the then 82,339,265 shares issued and outstanding, and would trigger the shareholder approval requirement under applicable rules of the TSX.

In accordance with the requirements of the TSX, in lieu of calling a shareholders meeting to approve the Private Placement, the Company proposes to provide the TSX with written evidence that holders of more than 50% of the shares of the Company (other than the shares controlled by Dr. Jonathan Koon Shum Choi and Mr. Michael Koon Ming Choi) are familiar with the terms of the Private Placement to insiders of the Company and are in favour of it.  With this confirmation, the TSX will consider permitting the Company to proceed with the Private Placement without holding a shareholder meeting to formally approve it.

Mrs. Mary Yuk Sin Lam, a Director and the Co-Chairman of the Company, is the holder of more than 50% of the voting securities of the Company (other than those securities held or controlled by Dr. Jonathan Koon Shum Choi), and she has provided the Company with a written consent that she is in favour of the amendments and based on this consent, the Company intends to rely on an exemption provided by the TSX and does not intend to call a meeting of the shareholders to approve the Offering.

About Kingsway International Holdings Limited

The Company is a strategically positioned asset-based financial services provider, linking the global investment community with the PRC's high growth economy. The Kingsway Group is now positioned into three integrated divisions: Capital Markets Group, consisting of brokerage and financial services, including investment banking; Strategic Investment Group, a merchant bank focused on mining and natural resources; and an Asset Management Group specializing in private equity funds. The Kingsway Group's primary subsidiary, SW Kingsway Capital Holdings Limited ("SWK"), is based in Hong Kong and listed on The Stock Exchange of Hong Kong. The SWK group of companies comprises the Kingsway Group's primary operating subsidiaries and is licensed to provide a range of financial services. The Kingsway Group operates from five offices located in Hong Kong, Beijing, Shanghai, Shenzhen and Toronto.

China is widely recognized as an increasingly important player on the world's financial stage. As the country continues to grow, its greatest needs will lie in energy and resources. Following a recent restructuring, the Company is positioned as a middle tier provider of financial services in these sectors and an opportunistic investor in these and related sectors. The Kingsway Group's strategy is to use investment activities strategically to generate advisory services revenue while creating value for its shareholders through asset accumulation.

Leveraging a 20-year track record and significant relationships throughout Asia, the Company continues to operate as a China focused multi-discipline asset-based financial services firm, with a focus on natural resources, infrastructure and real estate.

Founded in 1990, the Company is listed on the main board of the Toronto Stock Exchange under the symbol KIH.

Forward-Looking Statements

This news release contains forward-looking statements that are based on the beliefs of management of the Company and reflect the Company's current expectations.  In certain cases, forward-looking information can be identified by the use of words such as "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved".

Forward-looking information contained in this news release includes information relating to the proposed amendments to the terms and conditions to the Debentures and shareholder consent for such proposed amendments. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information.  There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Material factors or risks which could cause actual results or events to differ materially from a conclusion in such forward-looking information include the risks that the Company may not be able to obtain any required shareholder approval or consent and the risk that the Company may not be able to obtain the necessary regulatory approvals or such approvals may be subject to conditions that are unacceptable.  The Company cautions that the foregoing list of material factors is not exhaustive and is subject to change.  For additional information with respect to certain of these and other factors, refer to the risk factors section of the Company's management's discussion and analysis dated September 20, 2010 for the periods ended June 30, 2010 filed with the Canadian securities regulators, which is available on SEDAR at [ www.sedar.com ].  The forward-looking information contained in this news release represents the expectations of the Company as of the date of this news release and, accordingly, is subject to change after such date.  Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date.  While the Company may elect to, it does not undertake to update this information at any particular time, except as required by law.