中信泰富：
中信泰富：背景雄厚的高收益債券
鐵礦項目延誤
鐵礦項目延誤 以致 2013 年上半年收入下降
年上半年收入下降
相關業務營業總收入較去年少 28%，利潤大幅下降主要是公司的位於澳洲西部的鐵礦項目
長期拖延所致。不過，中信泰富的其他主要業務保持穩定，並錄得溢利。
財務狀況好轉
槓桿比率自 2012 年年底下降 4%至去年上半年的 46%。金融衍生工具負債亦較 2012 年年
底下降了 38%。受惠於槓桿比率下跌、現金流入增長及金融衍生工具風險降低，中信泰富
的財務狀況已逐漸改善。
獲實力雄厚的母公司支持
獲實力雄厚的母公司支持
中信泰富於 2008 年的主要外匯損失獲其母公司中信集團以注資形式填補。中信集團繼續
表現出對公司的大力支持，自其時起為中信泰富提供的資金高達 40 億港元。此外，中信
泰富亦已成為中信集團的第二大附屬公司，而兩間公司的高級管理人員亦有重疊，由常振
明先生兼任中信集團董事長及中信泰富主席。我們認為中信泰富已佔據有利位置可有所收
成，並可充分利用中信集團的優勢。
到期收益率吸引 信貸風險亦屬
風險亦屬合理
亦屬合理
CITPAC 21 目前以 97.2 元的折讓價進行交易（截至 2 月 14 日）。我們認為，此債券呈現折
讓，其發行公司亦獲強大的母公司支持，因此是非常吸引的投資選擇。
CITIC PACIFIC LIMITED (BB (s)/Ba1 (m)) - CITPAC 65/8 04/15/21
CITPAC 21 – High Yield with Parental Uplift
1H 2013 Earnings Fall On Delayed Iron Ore Mine Project
Total earnings of the underlying business operations were 28% below last year’s. The sharp decline
in profit was mainly due to the company’s long-delayed iron ore mine project in Western Australia,
while CITIC Pacific’s other key business segments remain solid and recorded a profit.
Improving Financial Position
Leverage decreased 4% from last year to 46% in the first half of 2013. Financial derivative liabilities
instruments dropped 38% from the end of last year. Supported by a lower leverage, growing cash
inflow and reduced exposure on financial derivatives, CITIC Pacific is improving its financial position.
Supported by Strong Parent Company
CITIC Pacific’s major FX losses in 2008 were covered by equity injections from its parent company,
CITIC Group. CITIC Group continues to show strong support for the company and has since
provided CITIC Pacific with funding amounting to HKD4billion. CITIC Pacific has also become the
second largest subsidiary of CITIC Group and given the high level of senior management overlap in
the two companies, Mr. Chang Zhenming, the Chairman of CITIC Group is also the Chairman of
CITIC Pacific, we believe CITIC Pacific is in a pole position to harvest and leverage the strengths of
CITIC Group.
Attractive YTM With Reasonable Credit Risk
CITPAC 21 is currently trading at a discounted price of $97.2, as at 14 February. We believe this
discounted bond issued by a company with support from a strong parent company is a very
attractive investment option.
BOND HIGHLIGHT - CITPAC 65/8 04/15/21
Table 1: Information Summary
Issuer Name
Announcement Date
Currency
Issuance Size
Issuance Price
Minimum Investment amount
Incremental Amount
Maturity Date
Years to Maturity
Call Schedule
Call Price
Coupon Date
Rating at Issuance
Source: iFAST Compilations
CITIC PACIFIC LIMITED
09/19/2011
USD
USD 500,000M
100.00
USD 100,000
USD 1,000
04/15/2021
7.5
N/A
N/A
April 15/ October 15
BB(s)/Ba1(m)
KEY FACTS
Company Background
CITIC Pacific Limited is an established and diversified corporation with a primary focus on three
main business areas: special steel, iron ore mining and property development in mainland China,
with each business accounting for 22%, 33% and 17% of the company’s total assets respectively.
With an annual production capacity of 9 million tonnes, the company is currently the biggest
dedicated special steel manufacturer in China and is building the largest magnetite iron ore mine in
the world (Sino), which is also one of the largest single investments by a Chinese company outside
China. Its other business segments include civil infrastructure, power generation and
telecommunication. CITIC Pacific is 58% owned by the state-owned CITIC Group Corporation, listed
in Hong Kong stock exchange and is a constituent of the Hang Seng Index.
Purpose of the Issuance
The net proceeds of the issue of the Notes will be approximately USD500,000M after deducting the
commissions, but before expenses incurred in connection with the issue of the Notes. The Issuer
intends to use the proceeds from the issue of the notes for its funding and general corporate
purposes.
COMMENTARY
CITIC Pacific Limited recently released its 2013 half-year report. The company reported that it was
finally moving into the initial production phase of its USD8billion iron ore project in Australia,
following years of delays. In light of the announcement, we choose to highlight CITPAC 21 as our
bond of the week.
Table 2: CITIC Pacific’s 1H 2013 Key Financial Results
Half-year ended
Half-year ended
30 June 2013
30 June 2012
HKD Million
HKD Million
Revenue
41,291
48,175
Earnings from
2,593
5,766
Consolidated Activities
Change in Fair Value of
608
909
Investment Properties
Net Finance Charges
(1,104)
(243)
Taxation
(268)
(950)
Profit
4,463
5,482
Source: CITIC Pacific and iFAST Compilations
Change (%)
(14%)
(55%)
(33%)
354%
(72%)
(19%)
1H 2013 Earnings Fall On Delayed Iron Ore Mine Project
CITIC Pacific’s revenue for the half-year ending 30 June 2013 fell 14% from the same period in
2012, while total earnings declined by 19% from last year (see Table 2). Total earnings of the
underlying business operations dropped even more, by 28% from the year before (see Table 3).
The sharp decline in profit was mainly due to the company’s long delayed iron ore mine project in
Western Australia, which recorded a HKD1,100million loss in the first half of the year, due to a
mismatch between the gas delivery under contracts and the production schedule, as well as an
increase in non-capitalised loan interest expense and other operating expenses. Nonetheless,
CITIC Pacific’s Sino Iron Project is the largest Chinese mining project abroad and the Chinese
government is supportive on this project. The China Development Bank has provided large loans
and continues to back the project despite delays and cost overruns. We believe once the project in
Western Australia achieves full operation and is running at its full capacity, the company’s
profitability will significantly improve.
On the other hand, benefiting from the company’s acquisition of the additional 25% interest in Xing
Cheng Phase II project, its special steel business improved in 1H 2013, with profits increasing
HKD81million to HKD605million (see Table 3). Plus, CITIC Pacific’s other key business segments
remain solid and recorded a profit. The energy sector had performed relatively well, increasing their
contribution to profit by 74%. This was mainly due to lower coal prices which pushed down its
energy production cost and its Ligang power station selling more units.
Table 3: CITIC Pacific’s Segment Profit
Half-year ending
Business Segments
30 June 2013
HKD Million
Iron Ore Mining
(1,054)
Property
417
Special Steel
605
Energy
872
CITIC Telecom
340
Tunnels
297
Other Investments
120
Underlying Business
1,814
Operations
Source: CITIC Pacific and iFAST Compilations
Half-year ending
30 June 2012
HKD Million
(110)
739
524
500
154
273
78
2,504
Y-o-Y Growth (%)
N.M.
(43.57%)
15.5%
74.4%
120.8%
8.79%
53.85%
(28%)
Improving Financial Position
CITIC Pacific Limited’s underlying credit strength and financial position remains sound with a lower
debt leverage and healthier liquidity. Cash generated from its business operations for the first half
of 2013 tripled to HKD3.7billion, from HKD1.2billion during the same period in 2012; leading the
company with a net cash inflow of HKD874million for the first half of 2013. Total assets of the group
also increased from HKD247,386million at the end of 2012 to HKD258,401million at the end of the
first half of 2013, which was mainly driven by the installation of iron ore mine equipment and the
increase in cash inflow.
The company’s debt and maturity profile remains healthy. As at 30 June 2013, the total outstanding
debt of CITIC Pacific increased merely 1% during the first half of 2013, of which over 46% of the
total outstanding debt matures in or beyond 2018 (see Table 4). At the same time, leverage, which
is calculated by using net debt divided by total capital, also decreased 4% from last year to 46% in
the first half of 2013. Furthermore, the company also cut back its financial derivative exposure. Its
financial derivative liabilities instruments dropped 38% to HKD3,096million, as at 30 June 2013,
compared to HKD4,978million recorded at the end of last year. Supported by a lower leverage,
growing cash inflow and reduced exposure on financial derivatives, CITIC Pacific is improving its
financial position.
Table 4: CITIC Pacific’s Maturity Profile
CITIC Pacific Limited
Maturity
HKD million
2013
400
2014
13,450
2015
17,369
2016
3,693
2017
59
2018 & Beyond
31,814
Source: CITIC Pacific and iFAST Compilations
Subsidiaries
HKD million
8,109
7,945
5,613
3,595
3,494
23,156
Total Debt
HKD million
8,509
21,395
22,982
7,288
3,553
54,970
Supported by Strong Parent Company
In 2008, CITIC Pacific Limited was involved in a series of unauthorised trades in accumulators and
structured FX hedging products, valued at AUD9billion (USD6.33billion), against the US dollar in
order to hedge against the currency exposure of the company’s iron ore mining project in Australia.
After reaching a high of roughly USD0.98 in July 2008, the Australian dollar fell sharply and traded
as low as USD0.65. However, the accumulator contracts required CITIC Pacific to purchase the
Australian currency at a fixed price of USD0.87; this losing position cost the company a total
realised loss of HKD807.7million. This tremendous loss has shaken the financial structure of CITIC
Pacific. After reporting the loss, trading of its shares was suspended on 20 October 2008 and when
resumed trading, its share price fell by 82% to HKD5.06 on 24 October 2008, compared with
HKD28.2 a share on 2 July 2008. Almost immediately, its parent CITIC Group increased its
ownership from 29% to 57.5% through an HKD1.5billion equity injection; this injection served as a
bail-out for CITIC Pacific’s huge losses on the foreign-exchange transactions.
Over the years, CITIC Group continues to show strong support for the company and has provided
CITIC Pacific with funding amounting to HKD4billion since the equity injection in 2008. CITIC
Pacific has also become the second largest subsidiary of CITIC Group, after CITIC Bank, in terms
of profit contribution. Besides, the company’s failure would be detrimental to CITIC Group’s
reputation, as it is a high profile ‘red chip’ company that has high exposure in overseas capital
markets. Moreover, given the high level of senior management overlap in the two companies, Mr.
Chang Zhenming, the Chairman of CITIC Group is also the Chairman of CITIC Pacific, we believe
CITIC Pacific is in a pole position to harvest and leverage the strengths of CITIC Group.
Chart 1: Historical Price & Yield
Historical Price & Yield
$
107
%
9
105
8.5
103
8
101
99
7.5
97
7
95
93
6.5
91
6
89
87
Price
YTM
85
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13
5.5
5
Source: Bloomberg and iFAST Compilations
Attractive YTM With Reasonable Credit Risk
CITPAC 21 is currently trading at a discounted price of $97.2, as at 14 February. We believe this
discounted bond issued by a company with support from a strong parent company is a very
attractive investment option.
Table 4: Summary of Financials and Ratios
1H 2013
Income Statement (HKDm)
Cash Inflow
3,714
EBITDA
8,892
Capital Expenditure
10,254
Revenue
41,291
Net Profit
4,463
Balance Sheet (HKDm)
Total Assets
258,401
Fixed Assets
137,296
Financial Derivative Liabilities
3,096
Inventories
12,254
Net Debt
84,580
Cash and Bank Deposits
33,685
Key Ratios
Net Debt to Total Capital
46
Total Debt to EBITDA
23.77
Debt to Assets
45.77
Total Debt to Common Equity
140.47
Source: CITIC Pacific and iFAST Compilations
2H 2012
Change
1,243
9,612
13,435
48,175
5,482
199%
(7%)
(24%)
(14%)
(19%)
247,386
128,040
4,978
11,803
83,808
32,821
4%
7%
(38%)
4%
1%
2.6%
50
21.05
47.14
148.15
-
Table 5: Summary of Bond Covenants
Key Covenants/Clauses
Interest Payments
Final Redemption
Status
- The Notes will bear interest at a rate of 6.625% per annum,
payable semi-annually in arrear on 15 April and 15 October
subject to adjustment of each year
- Redemption at par. Unless previously redeemed or purchased and
cancelled, the Notes will mature and become payable at their
principal amount (USD 100,000 per calculation amount) on 15 April
2021
- The Notes constitute dated subordinated (8 April 2011) obligations
of the Issuer, ranking pari passu without any preference among
themselves
- Claims will rank in priority to the rights and claims of holders of
subordinated liabilities which by their terms rank in right of payment
junior to the Notes and all classes of equity securities of the Issuer,
including holders of preference shares, if any.
（
）
- The Notes are issued in registered form in denominations of USD
100,000 each and integral multiples of USD1, 000.
Payments
- All payments of principal and interest by the Issuer will be made
free and clear of, and without withholding or deduction for any taxes
or duties, unless such withholding or deduction is required by law.
Governing Law
- The trust Deed and the Notes and any non-contractual obligations
are governed by English law, except that the provisions of the
Notes and the Trust Deed relating to subordination shall be
governed by Hong Kong law.
The Notes
- 6.625% Subordinated Notes due 2021
Source: CITIC Pacific and iFAST Compilations
Form and Denomination
Disclaimer and Risk Warning
This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any bonds. No investment
decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take
into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not
necessarily indicative of the future or likely performance of the bond. The price of the bond may fall as well as rise. Opinions
expressed herein are subject to change without notice.
Information and opinions presented in this publication have been obtained or derived from sources believed by iFAST Financial (HK)
Limited (IFHK) to be reliable, but IFHK makes no representation as to their accuracy or completeness and IFHK accepts no liability
for loss arising from the use of the material presented in this publication unless such liability arises under specific statutes or
regulations. This publication is not to be relied upon in substitution for the exercise of independent judgment. IFHK may have issued
other publication that are inconsistent with, and reach different conclusions from, the information presented in this publication.
Bonds are mainly for medium to long term investment, not for short term speculation. Bond investments are not bank deposits and
involve risks, including the possible loss of all principal amount invested. It is the issuer’s responsibility to pay interest and repay the
principal of bonds. If the issuer defaults, the holder of bonds may not be able to receive the interest and principal invested. The
holder of bonds bears the credit risk of the issuer. All pricing is indicative only and bond prices do fluctuate when market changes
which may cause loss of principal, and that there may not be a secondary market for bonds. Factors affecting market price of bonds
include, and are not limited to, fluctuations in interest rates, credit spreads, and liquidity premiums. Investors investing in bonds
denominated in non-local currency should be aware of the risk of exchange rate fluctuations which may cause a loss of principal.
Investors should refer to the respective Credit Rating Agencies (Moody’s, S&P or Fitch or others as the case may be) for their rating
definitions, methodology in evaluating the creditworthiness of the issuers and how the ratings are assigned. Rating agencies may
change their ratings at short notice. A change in rating may affect the price of securities outstanding. Each prospective investor
should consult independent professional advisers before making any investment decision based on your particular circumstances, in
particular, in determining the suitability and accessing the investment risks of any securities or other financial instruments.
Key risks of investing in bonds
• Credit risk - bonds are subject to the risk of the issuer defaulting on its obligations. It should also be noted that credit ratings
assigned by credit rating agencies do not guarantee the creditworthiness of the issuer;
• Liquidity risk - some bonds may not have active secondary markets and it would be difficult or impossible for investors to sell
the bond before its maturity; and
• Interest rate risk - bonds are more susceptible to fluctuations in interest rates and generally prices of bonds will fall when
interest rates rise.
Key risks of investing in high-yield bonds
• Higher credit risk - since they are typically rated below investment grade or are unrated and as such are often subject to a
higher risk of issuer default;
• Vulnerability to economic cycles - during economic downturns such bonds typically fall more in value than investment grade
bonds as (i) investors become more risk averse and (ii) default risk rises.
Bonds with special features
Some bonds may contain special features and risks that warrant special attention. These include bonds:
• That are perpetual in nature and interest pay-out depends on the viability of the issuer in the very long term;
• That have subordinated ranking and in case of liquidation of the issuer, investors can only get back the principal after other
senior creditors are paid;
• That are callable and investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures;
• That have variable and/or deferral of interest payment terms and investors would face uncertainty over the amount and time of
the interest payments to be received;
• That have extendable maturity dates and investors would not have a definite schedule of principal repayment;
• That are convertible or exchangeable in nature and investors are subject to both equity and bond investment risk; and/or
• That have contingent write down or loss absorption feature and the bond may be written-off fully or partially or converted to
common stock on the occurrence of a trigger event.