China Medical to Float $150 Million Note Offering

China Medical Technologies (NSDQ: CMED) will offer $150 million in convertible senior notes, due 2013. The company will use the proceeds for general corporate purposes and for the acquisitions of businesses, products and/or technologies.

As part of the offering, China Medical will also set up a complicated hedging mechanism for the buyers of the notes. The company will sell American Depositary Shares, at the price of $1 per ADS, to the note purchasers. The purchasers of the ADSs will sell (via prospectus) their newly acquired ADSs and hold the money. At some point in the future, the purchasers will buy back ADSs and return their ADSs to China Medical. In the interim, they are effectively short the stock because they must buy the ADSs back (even though they had nominal ADSs to sell).

The company says that, according to current GAAP practice, the number of outstanding ADSs will not change because the newly issued ADSs will be ultimately returned to the company.

China Medical Technologies is a medical device company with three lines of business: advanced in-vitro diagnostics products using Enhanced Chemiluminescence [ECLIA] technology and Fluorescent in situ Hybridization [FISH] technology, and High Intensity Focused Ultrasound [HIFU] devices for the treatment of solid cancers and benign tumors.

China Medical ended its Q2 with $114 million of cash on its books. It had $149 million of revenue in the previous twelve months and a market capitalization of $1.5 billion.

Disclosure: none.

Comments

[jorida:]

I would much appreciate if somebody could explain what CMED is doing here. It looks to me that they use a GAAP definition to hide a eal stock dilution. The market seems to read this as a bad operation since the stock lost already 15% in two days.

2008 Aug 13 10:35 AM