Private Placement With Firm’s Biggest Shareholder : Smith May Sell $20 Million of Stock

Smith International Inc. is discussing a private placement of $20 million in convertible preferred stock with Industrial Equity (Pacific) Limited of Hong Kong--the Newport Beach-based firm’s major shareholder.

The money will be “used for general corporate purposes, a number of things such as investment in building, tools and inventories,” said Loren Carroll, Smith’s executive vice president and chief financial officer. “This is not a bail-out.”

Terms of the issue should be worked out within the next several weeks, Carroll said. Under the terms being negotiated, the annual dividend rate would be 8.75%, the initial conversion price $8 per share.

“I think it’s pretty attractive financing for a company coming out of bankruptcy,” Carroll said. “It will be reflected on our financial statements as equity.”

Industrial Equity (Pacific) holds 20.6% of all Smith common stock, or 4.7 million shares, Carroll said. The proposed placement of preferred stock will not increase Industrial Equity’s share in Smith, which manufactures oil drilling equipment and production tools.

“I wouldn’t expect this to be converted into common stock for quite some time,” Carroll said.

Smith came out of bankruptcy Dec. 31, and Carroll contends that the proposed placement is proof that the company’s financial health is rapidly improving.

“I couldn’t be more pleased with the way everything is coming together with the reorganization plan,” he said. “A major, sophisticated investor is really interested in putting a substantial amount more money into Smith, which I think is great.”

Smith stock closed Monday at $6.50 on the New York Stock exchange, up 25 cents from its close Friday.