Nine Dragons Paper to tackle debt
Nine Dragons Paper (Holdings) will cut capital expenditure over the next two years to lower its debt after reporting worse-than-expected profits.
Shares in the mainland company fell 6.5 per cent to HK$3.57 yesterday.
Asia's largest containerboard producer will reduce its capital expenditure from the 8.5 billion yuan (HK$10.36 billion) spent in the 12 months to June 30 to 5 billion yuan in 2012, and 2.5 billion yuan in 2013, said Nine Dragons' chief financial officer, Armstrong Zhang Yuanfu.
The company wants to reduce its net debt to equity ratio from 101.7 per cent to 90 per cent. The ratio was 73.9 per cent in June last year, while net debt rose from 14.3 billion yuan in June 2010 to 21.4 billion yuan.
'People are complaining our debt is high, but our net debt to equity ratio will drop to 90 per cent by the end of 2013,' said chairwoman Cheung Yan, one of Asia's richest women.
'Next year our debt will remain high.'
Nine Dragons had reached a peak in its development and starting from next year would shift to steady growth, Cheung said.
The company intended to spend 7.5 billion yuan by 2013 to expand its annual production capacity by 5.75 million tonnes, Zhang said.
The company's capacity has risen to 11.45 million tonnes from 8.75 million tonnes a year ago.
'Some of our production projects have been delayed due to the government's tightening policies,' Zhang said, citing a project in Quanzhou in Fujian province that was to come on-stream last year but was postponed to this year.
Citi has cut its earning estimates for Nine Dragons over the next two years by 22 per cent, amid an expected slowdown in China's growth and tighter credit for business. JPMorgan has lowered its net profit forecast for Nine Dragons by 12 per cent for 2012 based on concerns over higher energy costs.
'We must control our debt,' Cheung said. 'In the coming year, we will adopt a cautious stance towards our finances,' Cheung said.
Net profit fell 9.2 per cent to 1.97 billion yuan, despite a 35.9 per cent rise in revenue to 24.39 billion yuan.
'Our sales could not keep up with the rise in the prices of raw materials and coal,' Cheung said.
The company will pay a final dividend of 0.08 yuan per share for the fiscal year, lower than the final dividend of 0.10 yuan in the previous year.