Hang Fung faces tight bond market

Hang Fung Gold Technology, which is planning to raise US$150 million from its first global bond sale, is tapping a market that has seen only limited supplies of primary issues since it was sapped by the credit crunch.

Hang Fung, a Hong Kong integrated jewellery manufacturer and retailer, has hired HSBC to sell seven-year bonds to raise funds to refinance existing debt, expand the company's retail network on the mainland, and for general working capital.

The proposed senior note, which will be guaranteed by the company's subsidiaries outside the mainland, is rated Ba3, or three steps below investment grade, by Moody's. Standard & Poor's rates it one step higher at BB.

Several companies have delayed eurobond offerings because of higher financial costs stemming from the subprime crisis.

Hang Fung will kick off its investor roadshow at the end of the week in Singapore before coming to Hong Kong and London early next week.

The company's aggressive expansion plan could increase its operating risks and financial pressure, according to Standard & Poor's.

Hang Fung plans to increase its retail outlets to more than 300 by March 2009 from 135 at the end of August, funding the expansion through a combination of debt and franchise arrangements.

Hang Fung, which was accused of selling fake items at one of its exhibition centres in a China Central Television report on the mainland in July, reported that net income dropped to HK$83.7 million for its fiscal year to March from HK$129.6 million a year earlier. Sales rose 9 per cent to HK$3.1 billion.

The company, which holds a substantial amount of gold assets, has strong underlying liquidity, according to S&P.

At the end of March, the company had about HK$200 million in cash and six tonnes of gold display items valued at HK$700 million.