Troubled Neo-China Land Group (Holdings) has taken a small step towards reducing its soaring debt, receiving initial approval last week to cut the buy-back price of its convertible bond, but it is too early to breathe a sigh of relief.
In a week in which it revealed it was the subject of an investigation by the Independent Commission Against Corruption, the mainland developer, with debts of about HK$7 billion, won the consent of bondholders to amend the redemption terms of HK$1.34 billion worth of bonds due in 2011, allowing the company to buy them back at 63 per cent of face value instead of the original 120 per cent. The deal has been approved by the stock exchange.
Under the revised terms, Neo-China must set aside about HK$580 million if all bondholders opt to exercise the option for early redemption on June 12. The revised redemption price alleviates the immediate liquidity pressure on Neo-China by reducing the redemption payment by more than HK$500 million from HK$1.1 billion at the original redemption price.
'We believe there's a good chance that Neo-China should be able to fulfil its payment obligation on the [convertible bond], based on the current cash balance in its Hong Kong account. However, Neo-China's liquidity position continues to be vulnerable,' Standard & Poor's credit analyst Bei Fu said.
On Wednesday the ratings agency raised its long-term foreign-currency corporate credit rating on the developer to CC from SD.
Ms Fu said it could be a stretch for Neo-China to maintain its current operating scale after the potential early redemption of the convertible bond for two key reasons.