Shanshui Says Local Government Facilitated Some Creditor Talks

by Lianting Tu

November 17, 2015 — 12:20 PM HKT

Firm has received repayment proposals including share issues
Company faces Nov. 18 hearing on its liquidation application

China’s latest defaulter said a local government has requested onshore creditors not to take aggressive actions against the company, flagging state involvement in the nation’s debt markets even after authorities vowed to cut such influence.

China Shanshui Cement Group Ltd., based in the eastern province of Shandong, said in a Monday filing that the government of Jinan city where the manufacturer is based has facilitated talks with some of the firm’s creditors after it missed payment on 2 billion yuan ($314 million) of local notes last week. The onshore creditors in those discussions "expressed their understanding and support of the request of the local government," it said.

President Xi Jinping must balance vows to liberalize markets with steps to avoid a surge in defaults amid the slowest economic growth in a quarter century. State-owned steelmaker Sinosteel Co., which pushed back an interest payment last month after regulators met with noteholders, again postponed the deadline this week. Sausage maker Nanjing Yurun Foods Co. paid off notes in October it had earlier said it was unsure it could repay after a local government asked lenders to help, according to SWS Research Ltd.

“The important factor is that the Jinan municipal council has involved itself,” said Charles Macgregor, head of Asian high yield research in Singapore at Lucror Analytics. "We wonder whether they are concerned over potential loss of jobs and increased social unrest were China Shanshui to be wound up."

Cayman Hearing

Henry Li, chief financial officer at Shanshui, said when reached by phone Tuesday that the Jinan government said it will not provide direct financing but it has asked banks to support the company. Lenders have temporarily agreed to not take legal action including asset preservation, Li said.

Two calls to the press office of the Jinan government went unanswered.

Shanshui became at least the sixth Chinese firm to default in the local bond market this year as a shareholder fight hurt financing. The manufacturer faces a Nov. 18 hearing on its liquidation application filed in the Cayman Islands where it is incorporated.

Holders of Shanshui’s onshore bonds that defaulted last week will review follow-up measures, according to a statement from China Merchants Bank Co., an underwriter of the notes.

Shanshui has considered proposals for repaying debt including new share issues, asset restructuring and asset securitization, it said in the Monday filing. The company also said that if the Cayman court grants the application and appoints provisional liquidators, they will have the right to choose and implement proposals to repay Shanshui’s debts.

“They have outlined a pandora’s box of solutions, but all will be in the hands of the provisional liquidator if appointed,” Lucror’s Macgregor said.