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SCMP Reporter

HOPEWELL Holdings is in dire need of a major debt restructuring to tide the property and infrastructure giant through tortured times.

  Confidence in the group, its assets and management, have been waning for some time. This week the company's shares hit something of a vacuum of sentiment, falling 12 per cent.

  The company, it is alleged, is running out of assets on which to pledge debt.

  The problem is this highly geared property developer turned power station and road builder has seen projects fail to earn early completion bonuses, fail to achieve revenue targets and fail to make budget.

  Profits for years have been propped up with sales of property and infrastructure assets including Consolidated Electric Power Asia (Cepa) and a part of the Guangzhou-Shenzhen highway operation.

  Now analysts are worried about the company's ability to keep selling assets to maintain profit momentum.

  In stock price terms, what we are seeing is a total loss of confidence among some of the, until now, more loyal investors in Hopewell shares. The stock is off 61 per cent from the last record close of $10.80 in January, 1994. On 12 months it is off 46 per cent, representing a paper-loss in market capitalisation of $17.5 billion.

  The stock appears to have slipped into a nasty, dark subterranean world where only concept stocks that have failed to live up to expectations lurk. It took First Pacific two years from 1991 to recover from such a fate and Dickson Concepts, Playmates and Paliburg are still down there.

  Unless there is a quick rebound in Hopewell's shares they are destined to remain exiled from mainstream investment shores for sometime.

  According to analysts the big problem for Hopewell is debt and the cover demanded, in terms of asset pledges, by its chief banker HSBC. It is reported the chief reason for Hopewell not finding a formal credit rating last year was due to a $11 billion asset pledge to cover $3 billion of credit-lines.

   When the credit-line was raised to $10 billion recently the pledge was also raised to $20 billion, leaving little else to pledge.

  The company, according to analysts, has not yet used up all its present credit line facilities, and no one is talking about really nasty developments like bankruptcy. But a debt re-structuring might be needed to ease the strain placed on Hopewell by the credit line terms.

  There is a shopping list of items many brokers say they want cleared up at Hopewell before they will entertain putting a buy recommendation on the stock.

  Analysts want to be assured Hopewell is able to cough up the final instalment of about $2 billion due to Cepa under the original terms of its listing in 1993. They want to know what the position is regarding asset pledges as the current cover is regarded by many as far too high.

  Chief among their demands is for the company to stop being economic with the truth. So what is new, many of you might say. Well, some analysts believe this is not good enough.

  When brokerage G.K. Goh came out early this year saying the Guangzhou Highway was overspent the company failed to come forward on the issue. Some analysts even suggest the company denied this story. Yet it was only after the corporate year end, in June, that the investment community found the project had overspent by a whopping $5.54 billion.

  When the company at the preliminary results announcement stage said its credit lines had been raised, few fully realised the money might have been needed in the wake of this overspend and the total did not represent the amount available to spend on new projects.

  'If I'd known the Goh report had been true I'd have been selling like a banshee,' an analyst said yesterday.

  It is alleged, in effect, a false market was created in Hopewell shares in the second quarter of the year and not a formal word or whisper has emerged from the stock exchange or the Securities and Futures Commission on the issue.

  The market was not fully informed about material financial circumstances at the company in the first half and analysts think regulators have failed investors by not getting to the bottom of what happened when and who knew.



Regulators appear to look other way