Hongqiao Bonds Erase Gains After Weiqiao Textile Auditors Quit

China Hongqiao’s 2018 notes erased earlier advances to fall 0.07 cents on the dollar to 96.05 cents as of 3:32pm in Hong Kong, after Weiqiao Textile said its auditors resigned.

Weiqiao Textile, substantially owned by Hongqiao’s majority shareholder and chairman, Zhang Shiping, said its auditors including Ernst & Young LLP, which also audits Hongqiao, resigned after the company said it wouldn’t agree to a proposal to engage an independent third party to investigate previous audit findings

“The Weiqiao news is not directly related to Hongqiao but the news is not positive,” said Annisa Lee, head of Asia ex- Japan flow credit analysis at Nomura in Hong Kong.

“EY had been auditor for a long time for Weiqiao, which makes it more important for Hongqiao’s 2016 results to be announced soon”.

Hongqiao’s external public relations firm Bell Pottinger said Hongqiao doesn’t have time frame for releasing 2016 results.

Weiqiao Textile’s 7% bonds due 2018 were traded at 99 points Tuesday afternoon, according to Bloomberg data, up from 97.4 points a week ago.

CANCELED DEALS

Hongqiao also said in a statement Tuesday it will no longer go through with $1.6b acquisition of two downstream metals firms because the plan didn’t comply with new regulations.

“The audit issue makes it difficult for Hongqiao to obtain funding/loans for the acquisition, if Hongqiao is unable to fund out of internal cash balance,” said Trung Nguyen, credit analyst at Lucror Analytics in Singapore.

Hongqiao’s shares were suspended last month after it warned it could miss the deadline for publishing its annual results due to issues raised by its auditor EY.

Earlier stories:

- China Hongqiao said to obtain waiver for $700m loan

- Hongqiao tycoon sought China help on auditor talks, short seller

- China Hongqiao sues Emerson Analytics for defamation in HK court

Bloomberg News
April 18, 2017, 08:00:01 GMT

Reporting by Lianting Tu; Editing by Neha D'Silva and Chan Tien Hin