Chinese hotpot eatery Haidilao’s bonds jump on buyback plan
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CHINESE hotpot chain Haidilao’s dollar bonds jumped by the most on record after the company announced a plan to buy back as much as US$240 million of the notes.
The firm’s 2.15 per cent bond due 2026 rose 3.3 US cents to 83.5 US cents on the dollar. Haidilao said in an exchange filing that it is making an offer to purchase the note, which has US$539.3 million outstanding, at a price of US$848 per US$1,000 principal amount.
The bond price fell to a record low of 72.7 US cents in early August, before rebounding later in the month amid a broader rally in Chinese notes as the authorities eased policy. The company is looking to rebuild its business after China rolled back virus curbs although analysts warn that slowing economic growth and a property slump may continue to damp spending.
“The bond buyback will definitely help boost market confidence,” said Ting Meng, senior credit strategist at Australia & New Zealand Banking Group. “Going forward, investors need to see whether the company can improve its operational efficiency and bring down leverage under the influence of the pandemic.”
The repurchase plan is likely to help Haidilao to pare its outstanding debt and may be taken as a signal that the firm has extra cash on hand.
The restaurant chain posted a net loss of 266 million yuan (S$54 million) for the first half of 2022, as dine-in services were suspended in parts of China amid lockdowns to curb the outbreak. It also closed 26 restaurants during the period, which contributed to one-off losses of 308 million yuan.
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Fitch revised Haidilao’s outlook to negative in June while affirming its ratings at BBB-, just one notch above junk grade, citing an uncertain pace of recovery for the dining sector under China’s Covid curbs.
Haidilao’s stock dropped as much as 5.5 per cent on Monday in Hong Kong.
“Earnings downgrades for the China restaurant sector for 2022 are likely to be over after the market digested weak 1H results, though it’s still struggling to cope with the zero-Covid policy,” Bloomberg Intelligence analyst Angela Hanlee wrote in a report last month. “Yet any positive signs showing revenue recovery could drive up market confidence, suggesting market expectations for 2H, are low.” BLOOMBERG
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