China's Nine Dragons in dollar bond sale: source

HONG KONG (Reuters) - Nine Dragons Paper (Holdings) Ltd (2689.HK: Quote, Profile, Research, Stock Buzz), China's largest paper board producer, is selling 5 year, dollar-denominated bonds which will yield around 8 percent, a source close to the deal said on Monday.

The offering, which aims to raise $300 million, will be sold at a spread of around 500 basis points (bps) over U.S. Treasuries, the source said.

Funds from the bond sale will be used to finance capital expenditure, refinance existing bank loans and for general corporate and working capital purposes.

The bond offering, handled by Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), could price as early as Tuesday, the source said.

Nine Dragons, which has two production bases in Dongguan and Taicang, plans to nearly double its capacity by 2009. It is raising capacity by 5.2 million tonnes per annum to add to its existing 5.35 million tonne capacity.

The bond has been rated BBB-minus, the lowest investment grade rating, by both Standard & Poor's Ratings Services and Fitch Ratings.

(Reporting by Umesh Desai; Editing by Anne Marie Roantree)