While banks are likely to offer a much-needed loan to Taiwan High Speed Rail Corp (THSRC, 台灣高鐵) next month, the rail company may still face risks in defaulting on its bond repayments, a local ratings agency said yesterday.
THSRC issued US$300 million in five-year unsecured convertible bonds on the Singapore Stock Exchange in 2007 as part of its effort to improve its financial structure. The bonds will be due in 2012, but investors can sell the bonds back to THSRC after three years at a yield of 6.5 percent.
“Given THSRC’s very weak cash flow generation, we believe the company faces substantial difficulties in servicing its debt payments due in the coming quarters,” Taiwan Ratings Corp (中華信評) said in an e-mailed statement.
Banks have tentatively agreed to provide a new syndicated loan of NT$382 billion (US$11.86 billion) to THSRC by Nov. 20 to help the rail company refinance its debts, Bank of Taiwan (臺灣銀行) chairwoman Susan Chang (張秀蓮) told reporters on Tuesday.
With the new funds, THSRC would be able to pay back its two previous syndicated loans — one for NT$308.3 billion and one for NT$65.5 billion.
But Taiwan Ratings warned that even if banks agree to THSRC’s request to further defer the principle amortizations on the two previous loans, scheduled to start on Nov. 20, “it is unclear whether the company will be able to meet the potential early redemption requirements on its convertible bond,” it said.
Therefore, with the liquidity uncertainty from potential bond redemption, Taiwan Rating yesterday placed a ‘twB’ issue rating on the convertible bonds and said it might lower the issue rating if the refinancing plan fails to materialize by Nov. 20.
THSRC, which posted NT$70.2 billion losses as of June, had only NT$4.3 billion in cash at the same date, according to Taiwan Ratings.
Shares of the company dropped 0.89 percent to NT$4.45 on the smaller Emerging Stock Market (興櫃市場).
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