Standard & Poor's

Moody's proposal sends Nine Dragons shares up

PUBLISHED : Thursday, 16 June, 2011, 12:00am
UPDATED : Thursday, 16 June, 2011, 12:00am

Nine Dragons Paper (Holding) said yesterday it had received a proposal from Moody's Investor Services after Standard & Poor's dropped the scrap paper recycler's rating, causing its shares to plunge to a two-year low on Tuesday.

The company, founded by the world's richest self-made woman billionaire Zhang Yin, saw shares dip as much as 22 per cent after S&P announced its rating withdrawal on Tuesday. S&P pulled the rating on the grounds that it had failed to make contact with Nine Dragons' management since the beginning of the year.

But shares rebounded sharply after trading resumed yesterday afternoon, rising 13.8 per cent to close at HK$6.43.

'It's pretty bad that the S&P announcement was made during market hours,' said Kenny Tang Sing-hing, a general manager at AMTD Financial Planning.

'A lot of investors didn't really understand what was going on and so they thought it would be better to sell off their stakes,' Tang said. 'There is quite a bit of concern with the corporate governance of privately-owned mainland companies right now.'

In a statement filed with the Hong Kong bourse yesterday, Nine Dragons refuted S&P's claims, saying that it 'had not received any written information request from S&P to which it had not responded' and it 'was willing to co-operate with S&P and ready to respond to any information request from S&P for purposes of the rating, at any time'.

Nine Dragons said it had repaid and been able to rollover all loans.

It still has a BB long corporate credit rating from Fitch, which has also assigned a BB rating on a Nine Dragons bond.

The company's shares fell a total of 17.4 per cent to HK$5.65 before trading was halted on Tuesday.

Nine Dragons, which recycles waste paper from the US and Europe, is the largest containerboard producer in Asia and has been borrowing heavily for expansion over the past few years.

It accumulated debt amounting to 20 billion yuan and had a debt-equity ratio of 88 per cent as of December last year.

In 2009, the highly-geared company had to buy back from investors a bond which it sold in April 2008 at a discount to reduce debt and interest charges. Nine Dragons initially paid investors 7.875 per cent in interest on the bond, but was asked to raise the rate to 9.875 per cent when it was downgraded to junk grade by Fitch and S&P at the end of 2008, following the financial crisis.