Who subscribed to Nine Dragons Paper's preferred perpetual capital securities? How do institutions view the company's issuance of preferred perpetual capital securities?
Jiulong Paper Industry (02689.HK), one of China's papermaking giants, has been consistently weak, falling 21.55% over the past 11 trading days. As of writing, it fell 3.02%, reporting HKD 3.53.
According to public information, Jiulong Paper Industry was established in 1995, headquartered in Dongguan City, Guangdong Province, China. In 2006, it was listed on the main board of the Hong Kong Stock Exchange and is currently the world's largest papermaking group and a leading enterprise in the integration of pulp and paper industries, with main products including various eco-friendly packaging paper, high-grade all-wood pulp paper, and its upstream and downstream industry chain.
The company issued an announcement on June 3, which attracted market attention.
According to the announcement, Jiulong Paper Industry officially signed a securities issuance agreement with a third-party issuing institution on June 3, issuing a total price of USD 400 million of preferred perpetual capital securities with an annual interest rate of 14% and a term of three years, from June 11, 2024 to June 11, 2027.
The announcement shows that Zhang Yin has subscribed to the majority of the bonds. At the same time, the company's executive director Zhang Chengfei and Liu Jinsong have subscribed to the securities. Zhang Yin is the actual controller, chairman, and executive director of Jiulong Paper Industry, as well as its founder.
The announcement also pointed out that this preferred perpetual capital security will not be registered under the U.S. Securities Act, will be sold offshore outside the United States, and unregistered securities will not be sold or offered for sale in the United States. It does not plan to sell to European or British investors, nor to the public in Hong Kong.
Regarding the preferred perpetual capital securities mentioned above, this type of security is a financial tool that combines debt and equity characteristics. Its financing cost is usually higher than ordinary corporate bonds, but if it is determined as equity, it does not enjoy tax deductions.
Citigroup's research report stated that this operation is high risk and may have a negative impact on the company's earnings. This issuance will reduce the company's debt-to-asset ratio. Therefore, the bank downgraded Jiulong Paper Industry's rating to 'neutral' and lowered the target price from HKD 5.50 to HKD 4.20.