20250705-招银国际-FAEACO_Revisit_the_knowns_and_unknowns_3页_579kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary by CMBI Fixed Income Department on the financial performance and outlook of Far East Consortium (FEC), with a focus on its Perpetual Notes (PERP) and potential refinancing challenges. The analysis is structured around known knowns, known unknowns, and unknown unknowns, providing a comprehensive view of FEC's current status and future prospects.

Main Points

Known Knowns

• FEC reported a loss before tax of approximately HKD1bn in FY25, as expected after the profit warning on 19 June 2025.
• Adjusted cash profit for FY25 dropped to HKD266.0mn from HKD780.3mn in FY24, but there are signs of stabilization in its operating performance.
• The adjusted net gearing ratio improved to 67.6% in March 2025, compared to 68.8% in September 2024 and 68.1% in March 2024.
• FEC's net debt has decreased, more than offsetting net losses and impairment losses.
• The sale of HK mortgage assets and BC investment occurred one month earlier than expected, improving FEC's liquidity and leverage.
• FEC's liquidity position (cash + investment securities) is estimated to increase to cHKD4.7bn from cHKD3.9bn on a pro-forma basis.

Known Unknowns

• The rationale for FEC's more cautious approach to perpetual coupon payments and partial calls remains unclear. Actions such as skipping the final dividend and the spouse of the chairman selling perps have raised speculation, but these are inconsistent with the improving liquidity and lower funding costs.
• FEC has pre-sold HKD5.1bn of GDV for projects to be completed by March 2026, and expects a net cash inflow of HKD2bn after settling construction loans, even in a conservative scenario.
• Proceeds of cHKD400mn are expected from the sale of Hornsey hotel and town hall, which is expected to be completed early next year.
• There is a possibility of further write-downs on DBC, but FEC has already recorded cHKD250mn in full-year impairment losses, with cHKD45mn in 2HFY25, a decrease from cHKD204mn in 1HFY25.
• FEC may still proceed with the asset swap with Star, despite the termination of HOA. However, the refund of AUD22.5mn (50% of AUD45mn) is not assumed.
• The refinancing of AUD1.3bn due in December 2025 at DBC level is expected to face delays due to the ongoing negotiation with Star.

Unknown Unknowns

• There is uncertainty regarding the attitude of banks toward FEC's refinancing efforts, especially following recent issues with HK corporations such as NWD and Emperor.
• Talks of a tender offer at a price well below par may indicate potential challenges, but FEC's liquidity and maturity profile are manageable, suggesting that such proposals may not be feasible.

Our View

• FAEACO 12.814 PERP: The bond moved 10 points lower following FY25 results, reflecting concerns over coupon deferral and partial call delays. However, the incentive for FEC to call the perps remains strong, especially with HIBOR significantly reduced.
• Cash Inflows: Solid cash receipts are expected from non-core asset sales and property developments in the UK and Australia.
• Valuation: At an ask price of 53, the bond offers a decent risk and return profile.
• Recommendation: Maintain a "Buy" recommendation on FAEACO 12.814 PERP.

Key Financials (Table 2)

Authors and Contact

• Glenn Ko, CFA (高志和): (852) 3657 6235 | glennko@cmbi.com.hk
• Cyrena Ng, CPA (吴蓓莹): (852) 3900 0801 | cyrenang@cmbi.com.hk
• Jerry Wang (王世超): (852) 3761 8919 | jerrywang@cmbi.com.hk

Disclaimer

• The report is intended for specific investors and may not be distributed to others without prior consent.
• CMBIGM is not a registered broker-dealer in the U.S. and does not provide individually tailored investment advice.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• CMBIGM may have conflicts of interest and may take proprietary positions that differ from the report's recommendations.