Karolinska Development's Board of Directors proposes measures to resolve the company's convertible loan
STOCKHOLM, SWEDEN – 29 May 2019. Karolinska Development AB (Nasdaq Stockholm: KDEV) (“Karolinska Development” or the “Company”) announces today that its Board of Directors proposes measures to resolve the Company’s convertible loan. The Board has decided on a directed issue of series B shares to the holders of the convertible loan issued in 2015, subject to approval at the upcoming Annual General Meeting. Sino Biopharmaceutical Limited (“Sino Biopharma”) and other owners, which in total holds 84 percent of the convertible loan has committed to participate in the directed issue corresponding to their convertible loan holding including accrued interest, subject to Sino Biopharma´s share of votes not exceeding 49 percent after the directed issue. Sino Biopharma’s commitment is subject to approval from Sino Biopharma’s Board of Directors, and the commitment of a minimum of 95 percent of convertible bondholders to participate in the directed issue, which as such are the preconditions required for the directed issue. In conjunction with the execution of the set-off issue, Karolinska Development initiates a new collaboration with Sino Biopharma to open the Asian market for Nordic innovations.
The Board of Directors of Karolinska Development has resolved, subject to approval by the Annual General Meeting (AGM) on 28 June 2019, on a directed issue of series B shares to the holders of the convertible loan, in order to facilitate conversion of the outstanding SEK 329 million nominal amount together with accrued interest. Sino Biopharma and certain other owners, who jointly hold 84 percent of the convertible loan, have agreed to submit subscription commitments corresponding to their convertible loan holding including accrued interest up and until 30 June 2019. Sino Biopharma´s commitment will however not result in an ownership in Karolinska Development exceeding 49 percent of the votes.
Sino Biopharma’s commitment is conditional of approval by Sino Biopharma´s Board of Directors no later than prior to the AGM in Karolinska Development, which as such is a precondition for the directed issue. Sino Biopharma’s commitment is further conditional on institutional convertible loan holders representing at least 95 percent of the convertible loan, including Sino Biopharma’s holding, have committed to set-off their holding of convertible loans in the directed issue. Sino Biopharma’s commitment is further subject to Sino Biopharma being granted by the Swedish Securities Council an exemption from the mandatory bid obligation as governed by the Swedish Takeover Rules.
The subscription price in the directed issue is proposed to be calculated as the volume-weighted average share price (“VWAP”) 15 trading days ending two days prior to the AGM, with a discount of three percent applied to the VWAP. The complete terms of the directed issue, including subscription price, are expected to be announced at the latest on June 26, 2019.
Nordic life science companies and healthcare providers face extensive challenges entering the Asian market, not at least due to cultural differences. This is particularly challenging for small and medium sized companies. Subject to the entering into a definitive agreement for the establishment of a joint venture with Sino Biopharma, Karolinska Development plans to set up a branch office in China with the task to bridge this gap by opening the Asian market for Nordic innovations. Together with Sino Biopharma, Karolinska Development will be able to offer Nordic small and mid-size life science companies access to the extensive distribution network offered by Sino Biopharma. The focus will be on companies close to market entries, with the ambition to generate positive cash flow to Karolinska Development in the relative near-term.
Sino Biopharma, listed on the Hong Kong stock exchange, is one of the leading pharmaceutical groups in China and a major existing shareholder in Karolinska Development. In 2018, Sino Biopharma recorded revenues of RMB 20.9 billion (approximately SEK 29.0 billion) and profits after tax of RMB 10.7 billion (approximately SEK 14.8 billion). The company together with its subsidiaries has close to 22,000 employees. Sino Biopharma’s representatives in the Board of Directors of Karolinska Development have not taken part in the planning and decisions related to the proposed directed issue or to the Asian branch office.
“Conversion of the convertible loan would imply a drastic improvement of Karolinska Development’s financial position. The planned bridgehead in China can bring new potential to our business model as we couple our deep understanding of Nordic life science innovations with the network and market understanding of one of the largest Chinese healthcare investors. We are looking forward to this new collaboration where Karolinska Development, Nordic entrepreneurs and Sino Biopharma together will bring new innovative treatments to millions of new patients,” comments Viktor Drvota, CEO of Karolinska Development AB.
More information on the proposed transaction can be found below.
IMPORTANCE NOTICE
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For more information, please contact:
Viktor Drvota, CEO, Karolinska Development AB
Phone: +46 73 982 52 02, e-mail: viktor.drvota@karolinskadevelopment.com
Fredrik Järrsten, CFO, Karolinska Development AB
Phone: +46 70 496 46 28, e-mail: fredrik.jarrsten@karolinskadevelopment.com
ABOUT KAROLINSKA DEVELOPMENT AB
Karolinska Development AB (Nasdaq Stockholm: KDEV) is a Nordic life sciences investment company. The company focuses on identifying breakthrough medical innovations that are developed by entrepreneurs and leadership teams. The Company invests in the creation and growth of companies that advance these assets into commercial products that are designed to make a difference to patients' lives while providing an attractive return on investment to shareholders.
Karolinska Development has access to world-class medical innovations at the Karolinska Institutet and other leading universities and research institutes in the Nordic region. The Company aims to build companies around scientists who are leaders in their fields, supported by experienced management teams and advisers, and co-funded by specialist international investors, to provide the greatest chance of success.
Karolinska Development has established a portfolio of ten companies targeting opportunities in innovative treatment for life-threatening or serious debilitating diseases.
The Company is led by an entrepreneurial team of investment professionals with a proven track record as company builders and with access to a strong global network.
For more information: www.karolinskadevelopment.com
MORE INFORMATION ON THE PROPOSED TRANSACTION
The convertible loan
On January 2, 2015 the Company issued a convertible loan with a nominal amount of SEK 387 million. The convertible loan carries an annual interest rate of eight (8) per cent from 1 January 2015 until 31 December 2019, when the convertible loan falls due for payment. Interest is capitalized annually in arrears and payable in connection with the repayment of the convertible loan, provided that conversion has not taken place before that. The convertible loan grants a right to convert the convertible loan into shares of series B in the Company at a conversion rate of 22 SEK per series B share. The convertible loan is registered with Euroclear and listed on Nasdaq Stockholm.
The nominal amount of the convertible loan was reduced to SEK 329 million after the set-off issue carried out by the Company in March 2017. The outstanding convertible loan, together with accrued interest until repayment date on 31 December 2019, totals SEK 484 million, provided that conversion has not taken place before that.
Sino Biopharma with subsidiaries and other owners today hold convertibles in the Company with a nominal value of SEK 276 million, which together with accrued interest until 30 June 2019 amounts to SEK 390 million. Other owners who have not entered subscription commitments holds convertibles with a nominal value of SEK 53 million, which together with accrued interest up and until the 30 June 2019 amount to SEK 75 million.
Agreement with Sino Biopharma
Karolinska development has entered into an agreement with Sino Biopharma where Sino Biopharma agrees to support a directed issue to the convertible loan holders.
Key terms of the agreement:
- Sino Biopharma agrees to subscribe for shares of series B in a directed issue where part of convertible loan, including accrued interest until June 30 2019, held by Sino Biopharma is set-off in consideration for series B shares, up to a maximum of 49 percent of the votes in the Company after the directed issue. Sino Biopharma’s commitment is subject to an approval by Sino Biopharma´s Board of Directors no later than at the time of the AGM in Karolinska Development, which as such is a precondition for the directed issue. Sino Biopharma’s commitment is further contingent on institutional convertible loan holders representing at least 95 percent of the convertible loan, including Sino Biopharma’s holding, have committed to set-off their holding of convertible loans in the directed issue. Sino Biopharma’s commitment is furthermore subject to Sino Biopharma attaining an exemption from the mandatory bid obligation as governed by the Swedish Takeover Rules by the Swedish Securities Counsel.
- The subscription price in the directed issue shall be calculated as the VWAP fifteen trading days ending two days prior to the AGM, with a discount of three percent applied to the VWAP.
- In the event that any remaining amount of the convertible loan held by Sino Biopharma cannot be set-off to shares, Sino Biopharma commits to sell any remaining part of the convertible loan to a third party unrelated to Sino Biopharma, for the purpose of the acquiring party to set-off the remaining amount of the convertible loan in the directed issue no later than by September 30 2019. Furthermore, in the event of any remaining amount of the convertible after the directed issue, and the subscription price is higher than the market price of the series B share on Nasdaq Stockholm, the remainder of the convertible loan shall be set-off through a directed issue on a subscription price calculated as the VWAP, fifteen trading days ending two days prior to when the set-off takes place, with a discount of three percent applied to the VWAP.
- Sino Biopharma shall negotiate in good faith with the Company for the setting up a joint venture with Karolinska Development in China.
Terms of the directed issue
The Company’s Board of Directors has resolved, subject to approval by the Annual General Meeting, on a directed issue of series B shares to the Company’s convertible loan holders, with payment by set-off. The directed issue will be directed to all convertible loan holders, including Sino Biopharma. The offer to the convertible loan holders is subject to approval by the Company’s shareholders at the AGM to be held on 28 June 2019 and will require support by shareholders holding not less than two-thirds of the votes cast and the shares represented at the AGM.
The complete terms and conditions of the directed issue, including the increase in share capital, number of shares issued and subscription price, are expected to be announced on June 26, 2019.
The series B shares in the directed issue will be issued at a subscription price corresponding to the VWAP of the Company's share, fifteen trading days ending two trading days prior to the AGM, with a discount of three percent applied to the VWAP. The number of new shares in the Company to be issued to a single convertible holder is established by dividing the total nominal amount of the convertible loan, and accrued interest, with the subscription price. According to the original terms and conditions for the convertible loan, interest accrues until the quarter preceding the quarter in which conversion is requested is charged, meaning, that for convertible holders accepting the Offer, interest on the convertible loan will be accrued up and until 30 June 2019. Convertible holders with convertibles registered on a VPC account (VP-konto) with Euroclear Sweden AB will receive information material on the Offer from the Company. If the holding is registered in the name of a nominee with a bank or brokerage firm the convertible holder will receive information from the nominee.
The subscription period is expected to run from July 8, 2019 up to and including July 19, 2019. The Board of Directors of Karolinska Development will have the right to extend the subscription period. A potential extension will be announced by the Company through a press release no later than July 19, 2019.
The Board of Directors’ decision regarding the set-off issue is subject to approval at the AGM June 28, 2019. Notice to attend the AGM will be announced through a separate press release around May 29, 2019.
Indicative timetable for the directed issue to the convertible holders
The timetable below is preliminary and may be subject to changes.
June 26, 2019
Announcement of complete terms and conditions of the directed issue towards convertible loan holders,
including subscription price
June 28, 2019
Annual General Meeting in the Company
July 3, 2019
Record date for convertible holders in the Company to receive the prospectus and application form
July 5, 2019
Preliminary date for publication of the prospectus. Prospectus and application form is distributed to the holders of convertibles
July 8 – July 19, 2019
Subscription period
July 24, 2019
Announcement of preliminary results
Annual General Meeting
Notice to the AGM that takes place on Friday June 28, 2019 at 15.00 at Tomtebodavägen 23 A in Solna, Stockholm, will be published in a separate press release.
Financial and legal advisors
DNB Markets is acting as financial adviser and Cirio Advokatbyrå as legal advisor to Karolinska Development in connection with the directed issue to the convertible loan holders.
This information is information that Karolinska Development AB (publ) (Nasdaq Stockholm: KDEV) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of Viktor Drvota, at 13.50 CET on 29 May 2019.
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