China’s Cre8ive starts exchange offer for bonds after defaults

New York, April 16 – Cre8ive Capital China Ltd. announced it has begun an exchange offer for its RMB 353 million of 12% bonds due August 2018 following its failure to pay the interest due on March 31 and a default on the required use of proceeds.

The company is offering to exchange the bonds for new unlisted bonds issued by a Cre8ive Investment Ltd., a subsidiary incorporated in Hong Kong.

The existing bonds are listed on the Luxembourg Stock Exchange.

Cre8ive’s exchange will run through May 15 unless it is successfully closed at an earlier date.

Completion of the exchange is subject to all the existing bonds being tendered.

Cre8ive previously disclosed that it failed to pay interest due on March 31. It said it would pay interest in the form of additional bonds as part of the exchange.

In addition, a default on the existing bonds had already occurred when HK$158,605,053, or RMB 126,885,000, of the proceeds was used on Aug. 21, 2013 to buy Billion Sum Holdings Ltd., a company that owns 100% of the equity in Virtue Investment Holdings Ltd., from Jin Zhan Jie, a director of the issuer.

Goodwill of HK$125,728,856 was generated by the acquisition since the purchase price was higher than the fair value of the assets acquired.

The goodwill was accounted for as fully impaired on March 31, 2014, the end of the issuer’s fiscal year.

Under the terms of the bonds, RMB 200 million of the proceeds was required to be used to buy Virtui Investment.

Furthermore, the company announced on Oct. 14, 2013 that it had acquired Malim Enterprise (HK) Ltd., in accordance with the terms of the bonds.

In a March 4 notice, Cre8ive said that this statement “appeared to be incorrect. The contemplated transaction has not been completed to date.”

Cre8ive said it still plans to complete the acquisition of Malim, subject to financing.

Consequently, the company did not apply RMB 153 million of the bond proceeds to acquire 45% of the shares of Malim, nor did it place the proceeds in an escrow account, as initially disclosed in the prospectus.

Remaining proceeds from the bond issue of RMB 224 million were lent to director Jin Zhan Jie to acquire an additional 6.52% of the company, taking his stake to 55.73%.

Cre8ive also said that its auditor, Deloitte Touche Tohmatsu, resigned on June 30, 2014. Morison Heng Certified Public Accountant was appointed auditor instead.

The company also disclosed that as of March 4 the audited financial statements for the period ending March 31, 2014 had not been delivered to bondholders within 180 days as required by the terms of the bonds.

It pledged to provide them to bondholders by March 27. There was no further word on whether that happened.

Cre8ive is based in Hong Kong and is active in real estate.

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