Investors in Chinese logistics specialist ZTO Express (ZTO -2.15%) weren't on the fast track to wealth on Wednesday. The price of the company's American Depositary Shares (ADSes) sagged by more than 9% on the day, following news of a new round of capital raising.
ZTO Express unveiled a proposed offering of $870 million worth of convertible senior notes. These securities, which are debt instruments that investors can convert into stock under certain conditions, are to mature on Sept. 1, 2027.
ZTO added that it aims to grant the initial purchaser of the notes an option to purchase as much as $130 million worth of additional notes. It did not identify whom or what this purchaser might be.
Investors will have the right to convert the notes into ADSes at any point before the close of business on the fifth scheduled trading day prior to maturity. ZTO can choose to effect this conversion purely in ADSes, or with a mix of that stock and cash, at its discretion. Investors also have the option of receiving the company's Hong Kong-listed Class A shares instead of the ADSes traded on the New York Stock Exchange.
The company holds the right to redeem all of the notes for cash, provided that less than 10% of their aggregate principal amount remains outstanding five days before maturity. It may also do so if certain changes in tax law are enacted, although it did not go into detail about such occurrences.
ZTO said that it intends to use the proceeds it garners from the issue to pay the transaction fees of options taken out by the initial purchaser. It also plans to use the funds for the "enhancement of the scale and capability of our logistics operations," in addition to working capital and the usual "general corporate purposes" common to stock and debt offerings.