Primeline Agrees to Issue US$20m of Convertible Bonds to Fund Exploration Programme, to Acquire an Affiliate and to Convert Shareholder Loans

May 11th, 2015
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Primeline Energy Holdings Inc. (“Primeline” or the “Company”) (TSX VENTURE:PEH) today announces that:

  • It has agreed terms with GEMS for a US$20m convertible bond to provide funds for the forthcoming exciting exploration programme in Block 33/07;
  • It plans to acquire an affiliated company, Primeline Petroleum Corp (PPC) for shares in order to enlarge its asset base; and
  • It plans to convert the outstanding balances of US$10.1667m of shareholder loans into equity.

Dr Ming Wang, Chief Executive Officer, commented: “These three events constitute a huge step forward for Primeline. The investment from GEMS means we can now bring forward our exciting exploration programme in Block 33/07, anchored on the production facility for the LS36-1 gas field. GEMS is a credible partner and we believe working with them provides external validation of the Company’s prospects. The acquisition of PPC will greatly simplify our corporate structure and expand our asset base by a third, and the conversion of the shareholder loans further strengthens the Company’s balance sheet.”

“We thank Mr. Hwang for his generous support over the past 5 years which allowed us to succeed with the development of LS36-1 field. The Company is building cash from the LS36-1 production ahead of the start in November of this year of principal repayments on the debt facility which funded the base development. We thank GEMS for its investment and a partnership which allow us to move forward on the exploration programme capitalising on the infrastructure and market access from this base development.”

Convertible Bonds

In order to fund the two well exploration programme that it intends to undertake in Block 33/07 by the end of October 2015, the Company has entered into a term sheet with GEMS, a Hong Kong based manager of private equity funds, under which a resources fund managed by GEMS is to purchase a principal amount of US$20 million of unsecured Convertible Bonds to be issued by the Company (the “Bonds”). The term sheet is non-binding and subject to the conclusion of formal documentation and TSX Venture Exchange (“TSX-V”) approval.

The Bonds will be issued in two tranches of US$10 million each, the first US$10 million to be drawn down by no later than 31st July 2015 and the second tranche of US$10 million by 31st December 2015. The Bonds will be for a term of three years extendable for two one-year periods in certain circumstances to be agreed. Interest will be payable quarterly at 7% per annum, of which 4.5% will be paid in cash and 2.5% in Common Shares of the Company issued at a deemed price per share equal to the volume-weighted average trading price of the Common Shares on the TSX-V for the 15 days preceding the interest payment date. The Bonds will be convertible at the option of the holder 12 months from the date of issue to maturity into Common Shares at a conversion price of C$0.70 per share for the first tranche and C$0.85 per share for the second tranche. Primeline will have the right to require conversion of the Bonds in circumstances to be agreed. GEMS will have the right to call for redemption of the Bonds at maturity, on a change of control of Primeline and upon occurrence of an event of default. On redemption, Primeline will be required to pay such amount, which, together with previously paid fees and coupons, results in an aggregate return to GEMS of 10% per annum as of the date of redemption, with an additional premium in the event of a change of control of Primeline.

GEMS will be entitled to nominate one voting member to Primeline’s board of directors. In addition to GEMS’ reasonable expenses, Primeline will pay GEMS a structuring fee of 3.76% of the principal amount of the Bonds, 1.88% of which will be paid in cash at the time of drawdown of the first tranche and 1.88% in Common Shares three or six months after closing the transaction at a deemed price per share equal to the weighted average trading price of the Common Shares on the TSX-V for the 15 days immediately preceding the date of payment.

Completion of binding documentation is to take place by 22nd May 2015, until which time Primeline and GEMS will negotiate on an exclusive basis. The issue of the Bonds will be subject to customary conditions including satisfactory completion of due diligence, receipt of all required regulatory approvals, absence of adverse material change, approval of Primeline’s lending syndicate led by China Development Bank and China Export and Import Bank, approval of GEMS’ Investment Committee, completion of the proposed conversion of the shareholder loan into shares and the proposed acquisition of PPC by the Company.

Acquisition of Primeline Petroleum Corp (PPC)

Primeline intends to acquire PPC, a private company 100% owned by Mr. Hwang, which has 12.25% of the contractor’s interest in LS36-1 Field in Block 25/34 and 25% of the contractor’s interest in the Petroleum Contract for Block 33/07 in the East China Sea. The transaction is to be effected in shares on the basis of full price transparency subject to a fairness opinion via independent assessment and will be subject to approvals, including, inter alia, that of the TSX-V and uninterested shareholders. Once completed, the acquisition will increase the Company’s project base by one third, and it will own 49% of the LS36-1 Field and 100% of the exploration rights in Block 33/07.

Shareholder Debt Conversion

Between 2010 and 2014, all of the Company’s operations were supported by shareholder loans from Mr. Victor Hwang, its Chairman, President and major shareholder. Mr. Hwang generously provided such loans as interest free to support the Company through a critical period. Primeline has now agreed with Mr. Hwang to convert the outstanding balance of US$10.1667 million of shareholder loans into Common Shares of the Company. The conversion will be effected at a price of C$0.58 per share, representing a 9% discount to the closing market price of Primeline on 8th May 2015 and at a 15% premium to the 6 month weighted average trading price of the Common Shares on the TSX-V to 8th May 2015, and is subject to TSX-V approval.

About Primeline Energy Holdings Inc.

Primeline is an exploration and production company focusing exclusively on China resources to become a major supplier of gas and oil to the East China market. Primeline has a 75% Contractor’s interest in and is the operator of the petroleum contract with CNOOC for Block 33/07 (5,877sq km) in the East China Sea, and a 36.75% interest in the producing LS36-1 Gas Field in Block 25/34, together with CNOOC Limited (51% interest and acting as Operator for the field development and production) and Primeline Petroleum Corporation (12.25% interest). LS36-1 gas field has been in production since July 2014. Shares of Primeline are listed for trading on the TSX Venture Exchange under the symbol PEH.

About GEMS

GEMS was founded in 1998 as an independent investment company whose sole business is the management of private equity funds. Asia has always been the core focus for GEMS with a strong and experienced team having spent the majority of their working lives in the region. As a result, GEMS has extensive networks and relationships across the region. The team is made up of a diverse mix of individuals with relevant experience in both direct investment and industry. Oil and gas investment is central to GEMS pure resources focused strategy. GEMS endeavours to work closely with partners with the objective of creating long term, sustainable value through its investments.


Ming Wang, Chief Executive Officer

Please visit the Company’s website at Should you wish to receive Company news via email, please email and specify “Primeline Energy” in the subject line.

Forward-Looking Statements

Some of the statements in this news release contain forward-looking information, which involves inherent risk and uncertainty affecting the business of Primeline. These statements relate to Primeline’s expectation that it will enter into binding documentation with GEMS, and complete the offering of Bonds, the acquisition of PPC and the debt settlement with Mr. Hwang. Although these statements are based on assumptions management believes to be reasonable, actual results may vary from those anticipated in such statements. Primeline may be unable to agree binding terms of the issue of Bonds with GEMS, or if terms are agreed, to complete the offering of Bonds due to inability to satisfy conditions or other factors. Necessary regulatory and shareholder approvals may not be received for all or some of the transactions. If Primeline is unable to complete the transactions, it may have to curtail or cease its operations. Exploration for oil and gas is subject to the inherent risk that it will not result in a commercial discovery.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Primeline Energy Holdings Inc.
Dr. Ming Wang
+44 207.499.2288
+44 207.499.8888 or Toll Free: 1.877.818.0688

CHF Investor Relations
Robin Cook
Senior Account Manager
+1 416.868.6198
+1 416.868.1079 ext. 228