URA may issue bonds to raise cash for projects

PUBLISHED : Wednesday, 24 December, 2008, 12:00am
UPDATED : Wednesday, 24 December, 2008, 12:00am

Redevelopment body given same credit rating as HK government

The Urban Renewal Authority is considering increasing its cash for upcoming acquisitions by issuing bonds and borrowing from banks, which could be made easier after it was issued a top credit rating by Standard & Poor's yesterday.

The authority's managing director, Quinn Law Yee-kwan, said it was the first time it had obtained a credit rating from a rating agency.

'This is to pave the way for borrowing money,' he said.

Standard & Poor's gave the authority a credit rating of AA+, meaning its capacity to meet its financial commitment is very strong and stable. It is the same rating issued to the Hong Kong government.

Standard & Poor's credit analyst Christopher Lee said the rating reflected the authority's strong stand-alone credit profile, government backing, its leading position as an urban land supplier, its liquidity and debt protection.

But, Mr Lee warned, the authority's strengths were counterbalanced by the large cash outflows expected for new redevelopment projects in the next two years, growing pressure to undertake additional non-revenue-generating activities, and volatile property cycles.

'Mounting public demand for conservation of historical buildings and lower urban density could also have a negative impact on the authority's profitability,' he said.

Mr Law said the authority planned to use money from the public or banks for at least five projects in Kwun Tong, Sheung Wan, Mong Kok, Ma Tau Kok and Sham Shui Po.

'People in an economic downturn might quickly decide to sell their flats to the authority since the property market is expected to continue to decline,' he said. 'It will increase our demand for loans.'

The authority is expected to buy, renovate and revitalise 20 shop houses in Shanghai Street and Prince Edward Road West, Mong Kok, with a restoration cost of HK$1.3 billion. The total cost of the Kwun Tong town centre redevelopment, which is expected to lose money, has been estimated at more than HK$30 billion, with HK$12 billion needed for acquisitions starting this month.

Mr Law said the authority had only HK$10 billion in cash, and dismissed the possibility of turning to the government for more money.

'The government has already injected HK$10 billion in the authority and the authority is supposed to be self-financing in principle,' he said, adding that issuing bonds and obtaining bank loans were among the options the authority was considering to increase its cash level.

Mr Law refused to comment on how much money the authority was planning to borrow but said the value of bonds it issued would not exceed HK$1 billion. He also declined to comment on this year's budget.

Raymond So Wai-man, an associate professor of finance at Chinese University, said the rating would allow the authority to issue bonds at a lower cost.

'It would be wiser for the authority to issue bonds instead of borrowing from banks in this economic environment,' he said.