BNDES Rescues Lupatech Convert

Brazil’s Lupatech has sold shareholders BRL328m in 2018 convertible debentures. The industrial valve manufacturer completed on Monday a sale of notes to 75 different investors, it says, though Brazil’s development bank, the BNDES, ended up consuming 90% of the issue, according to a Lupatech IR official. The transaction launched in July extends Lupatech’s average tenor to 6.0 years from 1.5 and increase its proportion of BRL-denominated debt. The BNDES also approved earlier this year BRL441m in financing facilities for Lupatech. BNDES, which helped structure the transaction alongside Lupatech, had agreed to purchase 11.5% of the issue plus any remaining unsold convertibles. The notes will pay IPCA plus 6.5%, and can be exchanged for shares starting in year 3 using a conversion mechanism that Lupatech has 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, 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.