Hang Lung bonds seen funding land buys
Hang Lung Properties is expected to use the proceeds from its five-year HK$1.5 billion convertible bond issue to buy land at public auctions or other property investment, according to analysts.
It will be the first Hong Kong dollar-denominated convertible bond issue by a blue-chip company, said Hang Lung Properties executive director Terry Ng.
Mr Ng said a bond issue denominated in Hong Kong dollars would carry less currency risk. Blue-chip companies usually issue US dollar convertible bonds.
The issue could raise up to HK$1.75 billion with full exercise of option.
The company said last night the initial conversion price had been fixed at HK$9 and the interest rate at 3.4 per cent per annum.
Mr Ng said proceeds would be used for general corporate and working capital, and future property investment. He did not elaborate whether Hang Lung was preparing for land acquisition.
Lehman Brothers property analyst Anthony Wu believed the company was preparing to add to its land reserve.
Most developers are believed to be interested in bidding for the 10 small to medium-sized sites - mostly in urban areas - on offer in next financial year's public land auctions. Mr Ng expects the company's gearing will rise two percentage points to three percentage points from 23 per cent following the issue.
The move was partly triggered by low interest rates. 'We believe rates will move up in the next few years. This is the time to issue such bonds when we can still enjoy the low market level,' he said.
The company said last night the conversion price represented a conversion premium of about 11 per cent to yesterday's closing price of HK$8.10.
Mr Ng said Hang Lung would have about HK$5.5 billion cash on hand after the issue.
Hang Lung last week reported a 23.7 per cent drop in net profit to HK$633.9 million for the six months to December 31. Parent Hang Lung Group posted net earnings of HK$300.4 million, down 39 per cent.
