Hon Hai Precision Industry Co (鴻海) may seek syndicated loans to raise funds for future expansion after it canceled a plan to issue overseas convertible bonds, analysts said yesterday.
Hon Hai announced on Monday that it has scrapped a plan to raise up to US$1 billion in an overseas convertible bond sale because its share price in the bourse “failed to reflect the company’s value.”
“It is not the right moment for Hon Hai to sell bonds with its current low share price,” said Calvin Huang (黃文堯), an analyst with Daiwa Cathay Capital Markets (大和證券).
Hon Hai’s share price has fallen more than 21 percent so far this year and it has come under heavy pressure, especially in the past two months after a spate of suicides by Chinese workers at its subsidiary, Foxconn Technology Group (富士康) in Shenzhen.
The suicides forced it to reconsider its management approach, analysts said.
Yesterday, another worker died after falling from a dormitory building, Xinhua news agency said.
It was unclear whether the latest death was also suicide and the police are investigating, the news agency said.
To assuage its Chinese employees, Hon Hai announced two wage hikes in one week last month, and investors worry that the wage increases will squeeze its margins and hurt its bottom line.
“Bank loans are likely to serve as a good alternative to Hon Hai’s fundraising at the moment. Its declining share price will not be an issue in seeking bank loans,” Huang said.
TLG Asset Management (台壽保投信) analyst Arch Shih (施博元) agreed, saying that with its good fundamentals, Hon Hai should be able to reach a good deal with banks on syndicated loans.
“Global interest rates remain historically low. In terms of cost, bank loans are a better choice for Hon Hai,” Shih said.
Huang said Hon Hai may need funds to repay its short-term debt, which totaled NT$110 billion (US$3.42 billion) as of the first quarter this year.
“While Hon Hai was sitting on NT$188 billion in cash in the first quarter, its short-term and long-term debt reached NT$180 billion. I expect the company’s demand for funds will remain in place,” Huang said.
Hon Hai said the cancellation of the bond plan would not have any impact on the company’s operations, which according to TLG’s Shih, remain strong.
Shih said Hon Hai is taking advantage of its broad global operating base to meet demand for large orders and timely deliveries and has secured notebook computer orders placed by Hewlett-Packard to further boost its sales.
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