Hong Kong: JSM Helps Tsingtao Brewery to Conclude a Landmark Convertible Bond Issue
Last Updated: 7 May 2003

On 1st April, 2003, Tsingtao Brewery issued to the world’s largest brewer the first two tranches of the mandatorily convertible bonds worth of US$116M, which will increase the holding of Anheuser-Busch in Tsingtao Brewery from 4.5 per cent at present to 20 per cent over seven years. The mandatory convertible bonds were issued pursuant to the a strategic investment agreement entered into between the parties in October last year. Johnson Stokes & Master represented Tsingtao Brewery in preparing and negotiating the strategic investment agreement.

Under the agreement, Anheuser-Busch agreed to subscribe for an aggregate of US$180M worth of mandatorily convertible bonds in three tranches which will increase its stake in Tsingtao Brewery to 27 per cent. Closing of the remaining tranche is expected to take place by April next year. The deal was among the 5 deals signed ahead of President Jiang Zemin’s visit to the US last year and was cited as a tangible example of the vital trade relationship between the United States and China by the US Commerce Secretary Don Evans who witnessed the signing.

This is the first time that a mandatorily convertible bond structure has been used in the context of a strategic investment in an H share company. As Tsingtao Brewery is listed both in Hong Kong and Shanghai, the deal has takeover rules implications both under the Hong Kong Takeovers Code and the recently promulgated PRC Takeovers Rules.

This is a complicated transaction involving different areas of Hong Kong, PRC and U.S. laws and regulations. As the PRC Takeovers Rules have comecame into effect on 1st December 2002, the transaction is subject to the PRC Takeovers Rules as well as the Hong Kong Takeovers Code since Tsingtao Brewery is listed both in Hong Kong and Shanghai. This is the first time that the China Securities Regulatory Commission has granted a waiver from making a general offer in a transaction involving a foreign strategic investor.

Simon Ip, senior Senior partner Partner of the firm, commented, "This transaction reconfirms JSM’s continuing commitment to be involved in at the cutting edge of corporate finance practice in the Greater China region. JSM lawyers from different departments were involved in the process and this is very much the result of a team effort."

As part of the deal, special voting arrangements are agreed between Anheuser-Busch and the controlling shareholder of Tsingtao Brewery to secure that the state will remain as the controlling shareholder of Tsingtao Brewery.

JSM’s China Corporate Finance Group has considerable experience in initial listings and other stock exchange related transactions such as rights issues and other fund-raisings by listed companies. In 1996, the same team also acted for Zhenhai Refining (now Sinopec Zhenhai) in the first issue of convertible bonds by an H share company. The convertible bonds of Sinopec Zhenhai are listed in London and Hong Kong.

Johnson Stokes & Master is the largest law firm in Hong Kong and one of the leading commercial law practices in Asia. With offices in Hong Kong, Mainland China (Beijing and Shanghai), Thailand (Bangkok) and Vietnam (Hanoi and Ho Chi Minh City), JSM has a multi-national team consisting of over 800 staff of which over 240 are lawyers qualified in local and international jurisdictions. The firm JSM was has been voted "Hong Kong Law Firm of the Year" in 2000 and 2001 at the Asian Law Awards (2000 and 2001), at the Asian Legal Business Awards 2002 and, for the third year in a row, by the International Financial Law Review and at the Asian Law Awards.

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For further information please contact:

Anne So, Media and Communications Executive, Johnson Stokes & Master
(Tel: +852 2843 4580; E-mail: anne.so@jsm-law.com)

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