HomeMarket NewsMicro Cap StocksHow Rising Interest Rates Impact Hong Kong Broadband Company Earnings

How Rising Interest Rates Impact Hong Kong Broadband Company Earnings

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Hong Kong Broadband Network (HKBN Ltd.), the second-largest telecommunications provider in Hong Kong, has issued a profit warning due to the impact of rising interest rates on its earnings.

HKBN expects to report a loss of HK$1.3 billion ($167 million) for the year ending August 2023, compared to a profit of HK$500 million in the same period last year. The company attributes this significant loss to its joint ventures and the rising Hong Kong Interbank Borrowing Rate (HIBOR). HKBN’s borrowing costs are priced at HIBOR plus a fixed margin.

In its 2022 Annual Report, HKBN highlighted that better financing rates helped offset losses incurred by deals with joint venture partners due to sluggish local consumption. However, this situation has reversed due to the continued hawkishness of the Federal Reserve Bank.

Since US interest rates have been increasing, HIBOR has surged by over four times in 2023. Year-to-date, the HIBOR average is 3.95%, compared to just 0.77% at the same time last year, according to HSBC plc HSBC.

HIBOR is a daily floating interest rate typically calculated on a weekly basis for external lending purposes. As of October 6, HIBOR was near a 16-year high at 4.85%.

Why Rising HIBOR Matters

A high HIBOR is seen as a bearish measure for Hong Kong’s growth. HIBOR serves as the standard rate at which borrowing costs are priced in Hong Kong.

The increase in HIBOR has exerted immense pressure on borrowers and mortgage holders in Hong Kong, who have accumulated more debt throughout the year as property prices have plummeted.

Impact on Property Developers and Other Companies

The sharp increase in HIBOR during 2023 may impact the earnings of property developers like China Evergrande Group EGRNF, Country Garden Holdings Company Limited CTRYY, and Longfor Holdings Group Limited LGFRY. The increased mortgage rates could deter new home buyers.

Other companies that may be affected by higher HIBOR rates include those with high levels of borrowing, such as Swire Pacific Ltd. SWRAY and New World Development Co Limited NVDLY. Both companies disposed of assets in June to mitigate the impact of higher borrowing costs.

Β© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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