|HSIN CHEONG(404HK)||HSINCG8.75 5/18/18||7.13%||103.65||2.2|
Hsin Chong Construction Group’s due-2018 and due-2019 bonds fell more than 10 points this morning [16 February] on a bank pulling margin financing for company-issued securities amid rumors that two key relationship banks are considering pulling their credit lines, according to six market sources.
A spokesperson for the construction-turned-development company denied the rumors that credit facilities might be cut.
Hsin Chong’s unrated USD 300m, 8.75% due-2018s and USD 150m, 8.5% due-2019s were indicated at the high-80s shortly before lunchtime in Hong Kong, with substantial offer interest but limited bids, a dealer said.
In response to a “policy change,” Hang Seng Bank this week cut its margin financing level for securities issued by Hsin Chong to 0%, from 45%, a wealth management relationship manager at the bank said. The two tranches of notes are largely held by retail accounts in part because many institutional investors are concerned about the company’s growth plan in ostensibly low-value cities as well as related-party transactions and the mysterious departure of a well-regarded chairman and CEO late last year, as reported.
Hang Seng along with parent HSBC are the two banks rumored to be considering pulling lines, four of the six market sources said. A banker close to the situation and a person with knowledge of the matter said the banks are “running down” their credit facilities extended to the firm.HSBC and Hang Seng are the first two names on the non-alphabetical list of the company’s principal banks, as per its 1H15 report.
While there is little disclosed on the relationship, another source familiar said at minimum, Hsin Chong has outstanding a CNY 1bn (USD 153.5m) facility from Hang Seng secured by a Beijing project valued at 2x more than the outstanding.
The two banks did not respond for comment.
As of end-June, Hsin Chong had HKD 3bn (USD 385m) unrestricted cash against HKD 3.13bn bank borrowings and HKD 2.38bn of other borrowings from financial institutions maturing in the subsequent 12 months, according to the company’s interim report. It had restricted cash of HKD 25.9m.
The company issued the USD 150m due-2019s in January this year, part of a combined USD 550m of debt it raised since May 2015 to refinance mostly PRC-entrusted loans backed by newly acquired projects as well as to fund the initial deposits for its construction projects in Hong Kong, as reported.
Bankers since early this month have sounded out interest in Hsin Chong potentially tapping the due-2019s, according to two of the six market sources who were approached.
As reported, a shift in Hong Kong-based Hsin Chong’s business focus to the high-capex property development in China might in part erode the company’s strong fundamentals built upon its stable Hong Kong construction business.
Hsin Chong has been raising money largely because it won more than HKD 15bn construction project contracts in Hong Kong last year, nearly 3x more than 2014, the company spokesman said. Hsin Chong generally needs to chip in 3%-7% cash as a performance bond for every contract it wins, he added. There is also generally a roughly two-month time lag between the company’s outlay on a project for items like salaries and materials and when it gets reimbursed, he said.
The company relies on lending from commercial banks to fund the working capital, he said.
Hsin Chong is in a blackout period and scheduled to release its FY15 results in late March, the company spokesperson said