- PCCW Wealth Limited is offering a tender offer price of 94 with a maximum tender consideration of USD 30m
- The tender offer will commence on 25 November 2022 and will expire on 9 December 2022
- Richard Li holds approximately 30.89% equity interest in PCCW Limited and FWDGRP is indirectly majority owned and controlled by Richard Li
- We do not find the tender offer attractive as the tender price is close to its current indicative price of 94.1
- We think bondholders are better off to hold their FWDGRP 5.750% 09Jul2024 Corp (USD) which will mature in approximately 1.6 years and will be redeemed at par value of 100
FWD Group Holdings Limited (“FWDGRP”) announced
that PCCW Wealth Limited (“PCCW”) is offering a tender offer to bondholders of
the FWDGRP 5.750% 09Jul2024 Corp (USD). PCCW is offering a tender offer price
of 94 and the maximum tender consideration is USD 30m.
The tender offer will commence on 25 November 2022 and will expire on 9 December 2022. PCCW Wealth Limited is a direct wholly owned subsidiary of PCCW Limited. PCCW Limited is a Hong Kong information and communications technology company listed on the Hong Kong Stock Exchange (HKEX: 0008). The company is founded by Richard Li, who also holds significant shareholding in FWDGRP. Richard Li holds approximately 30.89% equity interest in PCCW Limited and FWDGRP is indirectly majority owned and controlled by Richard Li. At a maximum tender amount of USD 30m, PCCW will hold below 4% of the outstanding amount of the notes after the tender offer is completed.
For the half year ended 30 June 2022 (“1H22”), FWDGRP reported total revenues of USD 4.5b, a decrease of 24.5% from 1H21. In 1H22, FWDGRP saw a net loss of USD 305m as compared to USD 205m in 1H21. The fall in revenue is due to the fall in investment returns due to tougher market conditions in 2022. Investment returns in 1H22 amounted to a loss of USD 57m as compared to USD 1.0b in 1H21.
For its solvency ratios, FWD improved from 1H21. FWD Life Insurance Company (Bermuda) Limited (under HK Insurance authority) had solvency ratio of 295% (vs. regulatory requirement of 100%); FWD Life Insurance Public Company Limited (under Thailand Office of Insurance Commission) had solvency ratio of 326% (vs. regulatory requirement of 100%); FWD Life Insurance Company, Limited (under Japan's Financial Services Agency) had a solvency ratio of 1,319% (vs regulatory requirements of 200%).
One thing to note is that the Hong Kong Insurance Authority requires FWD Life Insurance Company (Bermuda) Limited to maintain a solvency ratio of 150% - 200% and failing to do so FWD would need to get consent from the HKIA to declare or pay dividends to shareholders.
Overall, FWD has sufficient capital and we do not see the capital depleting close to its regulatory requirements. Cash and cash equivalents for 1H22 was USD 2.191b. The fall in cash was due to the redemption of its 6.250% perpetual bonds.
We do not find the tender offer attractive as the tender price is close to its current indicative price of 94.1. The fall in price for the FWDGRP 5.750% 09Jul2024 Corp (USD) is likely due to the rise in benchmark interest rates in the US which led to a negative impact on USD bonds. Considering that FWDGRP’s solvency ratios have a significant buffer over their regulatory requirements, we think FWDGRP is still very well capitalised. We think bondholders are better off to hold their FWDGRP 5.750% 09Jul2024 Corp (USD) which will mature in approximately 1.6 years and will be redeemed at par value of 100.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in FWDGRP 5.750% 09Jul2024 Corp (USD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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