Bond Articles


First Sponsor Group Limited: Dongguan a bright spot in China

Phillip Bonds  |   15 Nov 2021  |    28 views

First Sponsor Group Limited (FSG) holds strategic exposure in the hot Dongguan market, a bright spot amid the slowing China property market. Sales have been hot with substantial units sold on the first day of pre-sale launches. The group’s hotel business has also been picking up as borders gradually re-open. With a strong balance sheet, substantial potential equity infusion from the exercise of outstanding warrants and unutilised committed credit facilities, the group is well equipped to capitalise on new business opportunities.

 

Hot sales in Dongguan property development

The group’s first two residential apartment blocks (452 units) of the Time Zone, Dongguan (17.3%-owned) were substantially sold on the first day of its pre-sale launch on 28 August 2021 at the maximum permitted selling price. Four out of five of the residential apartment blocks (1,194 units) in the Skyline Garden, Dongguan (27%-owned) have been fully sold while the fifth has been substantially sold. Looking ahead, pre-sales for the remaining three residential blocks (484 units) and two SOHO blocks (648 units) of Phase 1.1 of the Time Zone project are expected to be launched progressively in the coming months. This will help boost future cash flows.

 

Hotel business turning around

The re-implementation of restrictions in July 2021 following a resurgence of Covid-19 cases has not dampened demand for the Group’s European operating hotels in the traditionally strong summer quarter. All of the Group’s European operating hotels achieved higher overall occupancies as compared to the same period last year. The Dutch government eased the Covid-19 measures gradually over the summer. Demand for regional hotels has been strong over the summer while demand for city hotels continues to recover on a slower trajectory. Overall occupancy for the portfolio increased to 64.0% in 3Q2021 (3Q2020: 61.8%). Following the easing of Covid-19 restrictions, the Hampton by Hilton hotel more than doubled its occupancy to 76.3% for 3Q2021 (3Q2020: 32.9%). In China, there was a resurgence of Covid-19 cases in Chengdu in July 2021. The swift implementation of restrictions from late July to mid-August quickly stabilised the situation. The business for the Crowne Plaza Chengdu Wenjiang and Holiday Inn Express Chengdu Wenjiang Hotspring hotels has since recovered.

 

Regulatory approval catalyst to boost sentiments

The Stage 2 development approval of the 39.9%-owned City Tattersalls Club (CTC) project is expected to be granted in 4Q2021. This will be a significant milestone for the development trust as it would then be possible to commence construction and pre-sale around mid-2022, upon the appointment of a main contractor. The Group has a 39.9% equity stake in the development trust that has undertaken to develop the CTC Project. Trust is entitled to a development fee which shall, subject to certain deductions, comprise, among other things, the gross proceeds in respect of the sale of the 241 residential apartment units which form part of the CTC Project. The Group will be providing construction financing to the Trust as part of its property financing business.

 

Summary

First Sponsor is cautiously optimistic on the future sales outlook given the strong underlying property demand and supply dynamics in Dongguan. They’re also benefiting from return of demand for their hotels. The group’s balance sheet is healthy with debt to equity at 41%, and current assets to current liabilities stands at 1.7x. This shows the group has ample assets to cover its short-term liabilities, giving FSG flexibility to capitalise on new business opportunities. 

First Sponsor has one senior unsecured SGD bond, FSGSP 3.290% 20Feb2025 (SGD)

 

 

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