NEW ISSUE REVIEW : HONG FOK CORPORATION 5% 5Y BOND
Old firm (Market Cap SGD 486 mio) trying to capitalise as much as they can on their asset price gains to raise cash.
I will not elaborate on the company as OCBC did an excellent write up about them.
Some comments :
* The company failed to tapped the market when their secured bonds matured in 2011. They ended up pledging their assets for bank loans instead.
* It would seem that they have maxed out their borrowing ability with the banks as loan to valuation ratios are typically 50-60% and HFC has SGD 1.2 bio assets vs loan SGD 592 mio (and intra group debt of SGD 703 mio).
* All their assets are pledged.
All the loans of the Group are secured by:
(i) mortgages on and assignment of rental income from investment properties with carrying values of
approximately $1,257,660,000 as at 31 December 2011 (2010: $1,104,803,000);
(ii) mortgages on development properties with carrying values of approximately $390,294,000 as at
31 December 2011 (2010: $350,531,000) and assignment of the rights, titles and interest in the tenancy
agreements, sale and purchase agreements, building contract, performance bonds and insurances from
the development properties; and
(iii) guarantees by the Company (Note 16).
extracted from annual report.
* This bond issue is thus, totally UNSECURED and in other words, subordinated to the loans as well a deferred tax liability.
That is probably the reason for the 5%.
I would not venture to use Guocoland or HPL (recent 5Y SGD 45 mio at 3.5%) as comparables as they are much bigger and more diversified. HFC has only 2 main properties in their stable, granted they have been in business for 50 years. The Concourse Skyline project has been considerably delayed which begs to question their development record.
Overall not a compelling buy at 5% when we have Aspial paying up 5% for 3 years, Guocoland and LMIRT last coming at 4.35% and 4.48% for 5 years just a couple of months back. They should still be able to raise SGD 50-100 mio (total MTN size is SGD 300 mio).