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Tianrui Says Will Help Fix Shanshui Debt If EGM Vote Passes

by Bloomberg News

November 13, 2015 — 2:08 PM HKT; Updated on November 13, 2015 — 3:29 PM HKT

  • DBS doubts that Tianrui has the financial muscles for funding

  • Actions of onshore lenders are of more importance, Lucror says

The largest shareholder in China Shanshui Cement Group Ltd. said it could help solve the debt woes of the nation’s latest defaulter, if it’s successful in a bid to change the company’s board.

Li Heping, vice chairman of Tianrui Group Co., said in a Friday interview that Tianrui would help fix Shanshui’s debt problems if its proposal to change the firm’s board passes at a Nov. 25 extraordinary general meeting. Shanshui, which is at the center of a shareholder scrap for control, failed to pay 2 billion yuan ($314 million) of onshore notes due Thursday.

Shanshui is at least the sixth Chinese company to default in the local bond market this year as borrowers struggle amid an economic slowdown. The cement maker, which is incorporated in the Cayman Islands, has decided to file a winding up petition and seek the appointment of provisional liquidators there, it said on Wednesday. Two banks have asked for early repayment of Shanshui’s loans and the default scare has spread to the asset-backed securities market.

“On a cursory glance of Tianrui’s numbers, we are not sure if they have the financial muscles to align the required funding,” said Nancy Koh, credit analyst at DBS Group Holdings Ltd. “The crux of the matter is the unresolved shareholder battle.”

Raised Costs

Tianrui’s Li said that Shanshui’s filing for a winding-up petition has raised potential costs for his company because it now faces finding a debt solution. Tianrui, which holds 28 percent of Shanshui, would get “nothing in return” from its stake if it didn’t help, he said. China National Building Material Co. and Asia Cement Corp. are also shareholders in Shanshui with 16.7 percent and 20.9 percent, respectively.

“Most of Shanshui investors were pinning their hopes on ACC and CNBM, especially the latter as this would provide a quasi-state owned enterprise angle,” Koh of DBS said.

Shanshui’s onshore bondholders will meet Friday afternoon in Beijing, according to a Wednesday filing from China Merchants Bank Co., the underwriter of the securities.

“The actions of onshore lenders will probably be of more import, given they can seek orders from local courts impacting assets,” said Charles Macgregor, the Singapore-based head of Asian high-yield research at Lucror Analytics.

Worst Outcome

Shanshui’s Chief Financial Officer Henry Li said Thursday that noteholders could try and get their money back by asking the court to liquidate Shanshui’s assets, which would be the worst outcome. In addition to the 2 billion yuan notes that Shanshui failed to repay Thursday, the company has another 5.1 billion yuan onshore notes outstanding, according to Bloomberg-compiled data.

Its offshore $500 million 7.5 percent 2020 notes rose 1.8 cents on the dollar to 64.8 cents as of 3:26 p.m. in Hong Kong.

“It’s hard to tell if investors can get their money back,” said Sun Binbin, a bond analyst at China Merchants Securities Co. in Shanghai. “The company still has assets to sell to repay the debt. Whether it finally repays will depend on the negotiations between all the related parties.”