Zacks_Analysts' Blog : Home Inns Prices Senior Notes - Analyst Blog

Home Inns & Hotels Management Inc. (HMIN) recently priced a $160 million offering of convertible senior notes. The notes will carry an interest rate of 2% per annum and are due 2015. The interest will be paid on a semi-annual basis. The senior note offering is expected to close by December 20, 2010. The company also intends to offer initial purchasers a 30-day option to buy an additional $24 million of convertible senior notes to cover any over-allotment.

The notes will be convertible into the company's American depositary shares (ADS). The initial conversion rate for the notes is 20.256 of the company's ADS per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $49.37 per ADS.  The conversion rate is subject to adjustment upon the occurrence of certain events.

Home Inns & Hotels management plans to use the sales proceeds from the offering to finance new business development, investments in complementary businesses and assets, strategic acquisitions as well as general corporate purposes.  

As of December 31, 2009, non-current liabilities of the company were approximately $36.3 million. As of the same date, cash and cash equivalents of the company were approximately $121.5 million. We believe the company sits on ample cash balance and boasts of a sound capital structure.

Headquartered in Shanghai, Home Inns & Hotels engages in the development, lease, operation, franchise and management of a chain of economy hotels in the People’s Republic of China.

China is all set to bring about a recovery in global tourism and by 2020, it is expected to be the world’s largest travel destination. Home Inns & Hotels is all set to capitalize on China's secular growth story with its strong presence in that country. All its western peers including Starwood Hotels & Resorts Worldwide Inc. (HOT) and Marriott International Inc. (MAR) have their eyes on China.  Hence, we believe that in order to fund acquisition and expansion in China, the timing of the notes issuance is appropriate.