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SCMP Reporter

Nine Dragons Paper (Holdings) yesterday offered to buy back bonds worth US$283.75 million at a discount of at least 47 per cent to reduce debt and interest expenses.
The mainland's biggest maker of containerboard  is offering its beleaguered bondholders about US$160 million to redeem  the bonds,  according to a company filing to the Hong Kong stock exchange yesterday.
The buy-back is the company's latest move to reduce its liabilities after it announced at the end of last year  it had prepaid some loans and offered to repurchase US$16.25 million of the US$300 million in five-year senior notes.
'It is the right move, but not a surprise, as the firm needs to reduce its high gearing level,' said an analyst.
The company's net debt stood at 12.7 billion yuan (HK$14.4 billion) in the financial year to June last year, and the net debt-equity ratio rocketed to 94 per cent.
Nine Dragons' bondholders will get US$530 for every US$1,000 in principal if they accept the offer by February 23.
After that, until March, when the offer lapses, they will only receive US$50 plus coupon payments.
The company initially paid 7.875 per cent in interest on the bonds, and the rate rose to 9.875 per cent after rating agencies Standard & Poor's and Fitch Rating downgraded  them to junk  grade at the end of last year. By comparison, the domestic benchmark five-year lending rate is now at 5.94 per cent after several rate cuts last year.
Merrill Lynch was hired to arrange the buy-back.
Nine Dragons  is among a group of companies including Macau casino developer Galaxy Entertainment Group to buy back bonds.
The paper maker, controlled by Cheung Yan, formerly the mainland's  richest woman,  denied market speculation in December  it might face bankruptcy,  saying its financial position was sound and stable.  It later issued a profit warning.
Analysts said the conditions for the company remained very tough and that it had disappointed investors by issuing  the profit warning.
'We were already forecasting a 20 per cent decline for financial year  2009, but we have now made further changes to reflect a 40 per cent decline,' said a Macquarie report.
A Citi report  said Nine Dragons' net profit in  this year's first half   could plunge more than 45 per cent.
Shares of Nine Dragons closed up 2.32 per cent at HK$2.65 yesterday.



Nine Dragons offers to buy back bonds at discount