Lupatech Opts for Converts to Term Out

Brazilian industrial valves manufacturer Lupatech plans to issue BRL320m in 2018 convertible debentures, in a transaction backed by BNDES. The proposed issue – to be approved by shareholders June 1 – comes after 14 months of negotiation with BNDES. It will extend Lupatech’s average tenor to 6.0 years from 1.5 and increase its proportion of BRL-denominated debt, an investor relations official explains. The notes will be offered privately to existing holders over a 30-day period, with the development bank purchasing its portion as an 11.5% stakeholder plus any remaining shares at the end of the subscription period. The notes will pay IPCA plus 6.5%, and can be exchanged for shares starting in year 3 using a conversion mechanism that Lupatech claims is a first for the Brazil market. The conversion price is equal to the market price, limited to a BRL17.50-BRL35.00 range, plus a diminishing premium equal to 100% of the price in the third year and 40% of the price in the eighth. The formula is designed to protect existing shareholders, Lupatech says. A buyer holding the debentures for 9 years will receive a maturity premium of BRL423.75 per BRL1,000.00, which increases total return to the equivalent of IPCA plus 10% annually, it adds. Lupatech can also call the bonds after 2 years. Proceeds will pay short-term debt and fund future acquisitions, the official says. No bank is managing the transaction. About half of Lupatech’s debt is in dollars, including $275m in 9.87%% perpetuals trading recently at mid-70s levels, according to Credit Suisse. Earlier this month, BNDES and BNDESPar approved financing facilities for Lupatech worth BRL441m. Lupatech had BRL1.239bn in total debt as of Q1.