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Far East Horizon launches CNH 3-year bond at 5% IPG
Far East Horizon is looking to raise capital for working capital and general corporate purposes. The issuer has announced a new CNH bond at an initial price guidance of 5.00%.
Far East Horizon Limited (“FEH”) has a sizable amount of debt maturing in the next few months. The company may refinance those debt using the proceeds from this new CNH issue, which has an initial price guidance (“IPG”) of 5.00% - a decent yield for investors looking to deposit their RMB monies.
About the new issue
The new bonds will be issued under FEH’s USD4 billion medium term note and perpetual securities programme with a tenor of 3 years and initial price guidance (“IPG”) of 5.00%. Under this programme, FEH may refinance its short term debt.
The new bonds are expected to be rated BBB- by S&P Global Ratings. The securities are senior unsecured obligations of the issuer and may be redeemed for taxation purposes. FEH, the issuing entity is rated BBB- by S&P with a stable outlook.
Company background
FEH is one of China’s leading financial services companies. The Sinochem Group, as their largest single shareholder, acquired control of the company in 2000. The company follows an operational philosophy of “finance + industry” which provides its customers with tailor-made integrated operations services. As their philosophy states, their operations can be split into two segments – financial and advisory, and industrial operation.
Within the financial and advisory segment, they provide two services – leasing services and advisory services. The former earns through generating interest income, while the latter is based on fees. Industrial operations are broadly made up of two sub-segments, namely hospital operations and equipment operating leases. Far East Horizon Hospital Group is China’s leading hospital group with investments or control over 60 medical institutions covering over 20,000 beds.
Their operations focus in 9 key industries – healthcare, culture & tourism, engineering construction, machinery, chemical & medicine, electronic information, livelihood & consumption, transportation & logistics and urban public utilities. Most of the contributions to total revenue comes from the urban public utilities, healthcare, engineering construction, and culture & tourism segments.
1H20 operating results
Despite being diversified in different segments and services, FEH was not immune to the effects of the COVID-19 outbreak. The lockdown in China saw operations grinded to a halt in multiple industries such as tourism that left an impact on various segments of the business.
As such, revenue from advisory services declined by 36.04% YoY to RMB 1.97 billion in the six months ended 30 Jun 20 (“1H20”). However, segments were affected unequally and revenue from industrial operation segment grew by 21.87% YoY to RMB 3.62 billion in 1H20, while the urban public utility segment grew its profits by 13.04% YoY.
Additionally, lower interest rates meant that interest income also declined. Net interest-earning assets after accounting for provisions increased to RMB 217.66b at end-June 2020, up 10.14% from Dec 2019. However, net interest income still decreased by 5.31% YoY to RMB 7.73 billion in 1H20. All in all, profit before tax for 1H20 declined by 6.73% YoY to RMB 3.33 billion.
In October, according to the operation summary for the third quarter of 2020, FEH mentioned that their “operating results are improving quarter by quarter”. Their total revenue for 9M20 has also “returned to the level close” to that of 9M19. Although profits declined in 1H20, it is possible that FEH may eke out little to no loss for FY2020 considering that China re-opened its economy fairly early compared to other countries.
Balance sheet strength
FEH also has a strong balance sheet with its liquid assets being able to pay for its liabilities. Their loans and accounts receivables have also been adjusted for expected credit losses (“ECL”). Its asset-liability ratio (total liabilities/total assets) also remained relatively stable at 84.21% at 1H20, increasing slightly from 84.06% at the end of 2019.
Table 1: Selected balance sheet items
In RMB'000
1H20
Selected current assets
Loans and accounts receivables
105,557,084
Contract assets
21,185
Prepayments, other receivables and other assets
2,869,387
Restricted deposits
5,414,307
Cash and cash equivalents
7,972,789
Inventories
502,771
Selected non-current assets
Loans and accounts receivables
114,481,265
Prepayments, other receivables and other assets
10,553,222
Restricted deposits
3,054
Total selected assets
247,375,064
Selected current liabilities
Trade and bills payables
7,571,930
Other payables and accruals
17,438,514
Interest-bearing bank and other borrowings
101,661,363
Lease liabilities
254,816
Selected non-current liabilities
Interest-bearing bank and other borrowings
86,521,456
Lease liabilities
1,585,461
Other payables and accruals
21,374,243
Deferred revenue
613,459
Total selected liabilities
237,021,242
Source: Company's interim report, iFAST compilations
Although FEH has a significant amount of debt maturing within a year, it should be able to refinance its debt without difficulty. Also, its non-performing asset ratio is low, reaching 1.13% of interest earning assets at 1H20 from 0.91% in 2017. In addition, FEH has the flexibility to pledge more collateral to raise capital if they wish to issue more secured debt.
Table 2: FEH’s borrowings
In RMB'000
1H20
Bank loans and overdrafts repayable:
Within one year or on demand
53,092,324
In the second year
31,766,148
In the third to fifth years, inclusive
12,105,857
Beyond five years
1,317,373
98,281,702
Loans from subsidaries repayable:
Within one year or on demand
479,000
Other borrowings repayable:
Within one year or on demand
48,090,039
In the second year
15,002,524
In the third to fifth years, inclusive
26,329,554
89,422,117
188,182,819
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Feb 7 2021, 10:07 AM
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