Principal amount to be repay does not include interests.
For 12.5% interest, it is not actually high, for a shadow finance kind of loan, 12% is normal. HIgh quality companies of certain size are also getting this kind of deal if they cannot get bank loans.12-18% about 2to3 times PBOC rate
I agree with Skeptic and others who estimate the effective interest rate to be around 30% (instead of 12.5% or 16.5%). However, I am not thinking that the company is in dire straits or desperate. Consider a few other factors:
1. This is not a last-minute deal. Due diligence by SHK started more than 1 year ago. It met with management and went to the trade shows, checked out the Eratat stores, etc.
2. The interest expense is tax deductible, which brings down the cost to Eratat.
3. The warrant exercise price is 25 cents and expiry is 2 years time. There must be good reasons for the optimism embedded in that warrant pricing. I don't think anyone set out with the notion it's an exercise in futility.
Bond default is serious, creditor can lay claim to assets, and in this case lin jian Chen shares. Given the market capitalation of Eratat is 60 million ( bloomberg figure), about 300 rmb, he can Lay claim to half of the company. But Lin jian Cheng dun have that much shares, so shk can further lay claim on the assets of te company.
But in reality, they will most prob allow a refinancing under new terms. In the case of a default, u can understand the impact on shares price, so what shk can recover from the shares is highly questionable. If the price is halved, shk can swallow the whole Eratat. But again, in the case of default, who wants it anyway. So the most prob thing to happen is refinancing at better rate but with many punishing ceavets for it to survive.
Good luck then to shareholders in that default event
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