Packaging giant plans to buy back debt

Nine Dragons Paper (Holdings) Ltd, China's biggest maker of paper for packaging, plans to buy back US$284 million of five-year notes it sold in April at a discount of at least 47 percent of face value.

The company hired Merrill Lynch & Co to manage the bond buyback, which will cost Nine Dragons up to US$160 million, it told the Hong Kong Stock Exchange yesterday.

Investors who sell the bonds back to the company by February 23 will receive 53 cents on the dollar plus interest, while those tendering after that date but before March 9 will get 5 cents less, plus coupon payments, Bloomberg News reported.

Asian companies including billionaire Li Ka-Shing's Hutchison Whampoa Ltd and Lui Che-Woo's Galaxy Entertainment Group Ltd have bought back bonds since November to lower total debt and cut interest payments after prices for securities plunged.

Nine Dragons, controlled by Zhang Yin, formerly China's richest woman, last year denied reports it risked bankruptcy and told the bourse its financial situation was "sound" even as packaging demand from China's exporters waned.

It will fund the buyback from internal resources, according to yesterday's statement.

"We view this announcement as generally positive for the Asian high-yield market," BNP Paribas SA credit research analyst Winston Herrera said in a note to clients yesterday. The company will book a capital gain of US$133.4 million on the repurchase, he said.

Nine Dragons' debt is rated BB by Standard & Poor's and BB by Fitch Ratings.

S&P downgraded it to "junk" in December, citing the manufacturer's weakened financial strength.