Nine Dragons plunges after S&P pulls rating

PUBLISHED : Wednesday, 15 June, 2011, 12:00am
UPDATED : Wednesday, 15 June, 2011, 12:00am


Shares of Nine Dragons Paper (Holdings) - founded by the world's richest self-made woman, billionaire Zhang Yin - plunged to a two-year low after its credit rating was pulled.

The scrap-paper-recycling company's stock price fell 22 per cent to HK$5.36, and was trading down 17.4 per cent at HK$5.65 when trading was halted in the afternoon.

Investors sold off their shares following a statement from Standard & Poor's Ratings saying it had pulled its BB long-term corporate credit rating on Nine Dragons because it had not been able to speak to the company's management since the beginning of this year.

'We can't get an understanding [from management],' said Frank Lu, primary credit analyst at S&P. 'It's up to them [to keep the rating]. We are trying to understand their strategy, financial position and planning.'

A spokeswoman for Nine Dragons said she couldn't comment on S&P's withdrawal yesterday because an announcement to be filed with the Hong Kong stock exchange was pending, although she declined to say when this would happen.

Zhang, 53, with an estimated net worth of US$5.6 billion, topped the Hurun list of the richest self-made women billionaires in the world last year, ahead of US talk show host Oprah Winfrey.

The wealth of Zhang and her family, who together control more than 70 per cent of Nine Dragons, was further boosted after floating the company on the Hong Kong stock exchange in 2006, raising a total of HK$3.7 billion.

Nine Dragons, which is now the largest containerboard producer in Asia, collects waste paper from the US and Europe, ships it to China and recycles it into cardboard for packaging electronic goods and toys.

Often these boxes are transported back to where their materials came from, before Nine Dragons makes another round of recycling.

But Zhang, sometimes known as the 'queen of trash', hasn't had the most glamorous record in financing the growth of her company, which has been expanding aggressively, mainly by borrowing.

In 2009, Nine Dragons had to buy back bonds worth US$283.75 million at a discount of at least 47 per cent to reduce debt and interest charges after selling them to investors in April in 2008 to raise funds for expansion.

The highly geared company initially paid 7.875 per cent in interest on the bonds, and the rate rose to 9.875 per cent after rating agencies S&P's and Fitch Ratings downgraded them to junk grade at the end 2008 following the financial crisis.

According to bond traders, the Nine Dragons bond was named as one of the worst deals of 2008, as bond holders were left nursing losses.

A total of US$47.6 million in Nine Dragons bonds, which mature in 2013, are still outstanding but no one is buying them now.