BlackRock Sues Hidili for Bond Conversion Request Mistake

BlackRock Inc., the world’s largest money manager, sued Hidili Industry International Development Ltd. after a mistaken request to convert bonds of the Chinese coal mining company into shares.

Requests to convert 104.6 million yuan ($16.8 million) of convertible bonds due in 2015 were mistakenly issued by or on behalf of two BlackRock funds in December, according to a lawsuit filed in the Hong Kong High Court on Jan. 28.

Hidili knew or ought to have known that the request was issued by mistake and therefore should be void, BlackRock Japan Co. and BlackRock (Singapore), the investment managers of the funds said in the lawsuit. The funds were entitled to have all or some of the bonds redeemed on Jan. 19, according to the lawsuit, and the conversion of the bonds should be set aside.

Hidili’s Hong Kong-traded shares have fallen 13 percent since Jan. 21, just before it warned investors of a substantial decrease in after-tax profit last year from 2011 because of low sales and selling prices in the second half as well as a production halt at a coking plant.

The writ didn’t elaborate on how the mistake had been made. Rowena Kwok, a Hong Kong-based spokeswoman for BlackRock, declined to comment on any legal proceedings.

Hidili announced on Jan. 29 that two plaintiffs had sued it in Hong Kong seeking to void an erroneous conversion of 104.6 million yuan of bonds into shares, instead of intended requests for redemption.

The producer of coking coal said it was trying to verify that it had been served with the writ and to seek legal advice for it. The statement didn’t identify the plaintiffs.

The notes were part of a 1.7 billion yuan tranche of convertible bonds sold by Hidili in January 2010.

Bondholders owning nearly 1.6 billion yuan of the convertible securities submitted redemption requests and it paid out 1.7 billion yuan to buy back their bonds on Jan. 21, Hidili announced that day.

The case is BlackRock Japan Co. Ltd. and BlackRock (Singapore) Ltd. v. Hidili Industry International Development Ltd., HCA159/2013 in the Hong Kong Court of First Instance.

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