2006 - TCL Communication Technology Holdings Limited

TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED
Notes to Financial Statements
31 December 2006
28. CONVERTIBLE NOTES
On 11 May 2005, the Company entered into the subscription agreement with TCL Corporation, its ultimate
controlling shareholder, for the issue of an aggregate of Euro 20,000,000 principal amount (equivalent to
HK$185,100,000) of 3% Convertible Notes (“CN”) to TCL Corporation. The CN was issued on 29 July 2005. As at
the balance sheet date, there was no movement in the number of these CN. The CN has a term of 3 years and
TCL Corporation has the right to convert the CN at the conversion price of HK$0.58175 per share in whole or in
part in the principal amount into ordinary shares in amounts of not less than HK$10,000,000 on each conversion.
Subsequent to the open offer completed on 27 February 2006, the conversion price of CN is adjusted to HK$0.528324
per share.
The Company has the option to redeem, in whole or any part, the CN at 100% of their principal amount plus
interest accrued to but excluding the date of redemption after 24 months from the issue date.
The fair value of the liability component was estimated at the issuance date using an equivalent market interest rate
for a similar note without a conversion option. The residual amount is assigned as the equity component and is
included in shareholder’s equity.
The convertible notes have been split as to the liability and equity components, as follows:
2006 2005
HK$’000
HK$’000
Nominal value of convertible note issued 185,100 185,100
Equity component (19,430) (19,430)
Liability component at the issuance date 165,670 165,670
Interest expense 5,553 2,373
Interest paid (2,799) –
Liability component at 31 December 168,424 168,043
Annual Report 2006
93