Tianrui Says It Won’t Accept Shanshui Cement Takeover Offer

By David Yong,Lianting Tu

Tianrui (International) Holding Co. said it won't accept any takeover offer for China Shanshui Cement Group Ltd. because such a plan wouldn't resolve shortcomings at the country's fourth-largest producer.

Two of Shanshui Cement's largest shareholders -- Asia Cement Corp. and China National Building Material Co., which together own about 38 percent -- are considering a cash offer to acquire the shares they don't already control, according to statements to the Hong Kong stock exchange Tuesday. Tianrui is Shanshui Cement's biggest shareholder with 28.2 percent.

"Asia Cement or China National Building Material had not informed us about the general offer," Tianrui said in an e-mailed response to Bloomberg Wednesday. "We don't think a general offer can solve the problem of Shanshui, it will be useless finally. Tianrui won't accept any general offer."

The proposal by Asia Cement and China National Building Material escalates the fight for control of the $2.74 billion cement maker, just one week before a special meeting is due to be held during which shareholders will vote on whether to replace Shanshui Cement board members.

Tianrui wants to replace seven directors including Chairman Zhang Bin, and appoint its nominees at the July 29 meeting, according to a company filing on July 8. Taipei-based Asia Cement and China National Building Material are opposing Tianrui's plan.

'Not Good Enough'

"The reasons why we propose to change the management is about shareholders' interests," Tianrui said in its e-mail today. "The management's performance is not good enough comparing to other peers."

The disputes at Shanshui Cement have sparked several lawsuits for control of another key shareholder, China Shanshui Investment Co., which owns a 25.09 percent stake in the cement maker. A court hearing in Hong Kong today may offer better clarity on how China Shanshui Investment will vote come July 29.

Shanshui Cement's board has recommended shareholders reject Tianrui's proposal to alter its composition, saying the changes and chairman's ouster would breach some covenants in its bond indenture and mean the notes may have to be repaid immediately at 101 percent of par.

Shanshui Cement doesn't have the money to do that, it has said, having already spent $371.1 million to buy back its 2016 securities and $442 million on its 2017 debentures this year. Its $500 million of 7.5 percent 2020 bonds have risen steeply this week to trade at 93.36 cents on the dollar versus 85.36 cents at the end of last week.

Better Counterparty

Any takeover by Asia Cement and China National Building Material would be "positive as they would be a much better credit counterparty than either Zhang or Tianrui," said Trung Nguyen, an analyst in Singapore at Lucror Analytics Pte. "The cement industry in China is also in a consolidating phase, so the takeover isn't a surprise."

Institutional Shareholder Services Inc. and Glass Lewis & Co., which offer proxy advisory services to global asset managers, earlier this month recommended investors vote against Tianrui's resolutions at the July 29 meeting, saying Tianrui didn't provide any justification for its move.

"The recommendations are fair and reinforce our belief that the existing board continues to represent the best interests of the company," Li Cheung Hung, an executive director at Shanshui Cement, said via e-mail Tuesday. "We encourage our shareholders to take these into consideration for their vote."

Tianrui said in its e-mail today that ISS and Glass Lewis didn't approach it to discuss the extraordinary general meeting.