Mongolian Mining Loan Nonpayment Triggers Cross-Default on Bonds

By David Yong

March 23, 2016 — 11:19 AM SGT

•  Miner didn't make loan payments to BNP Paribas, China's ICBC
•  `It has been burning cash rather fast,' Lucror's Nguyen says

Mongolian Mining Corp. didn’t make principal and interest payments on a $200 million loan facility and wasn’t able to get a temporary waiver from banks, triggering a cross-default on its bonds.

The miner failed to make the payments on the loan facility taken from BNP Paribas SA and Industrial & Commercial Bank of China Ltd. in March 2014, and didn’t get a waiver from the lenders, according to a stock exchange filing. The situation constitutes a cross-default event in the terms of other indebtedness including its $600 million of 8.875 percent notes, it said.

Miners worldwide are facing a cash crunch amid a slump in commodity prices to the lowest since 1999, with coal having lost 60 percent in value in the past five years. Asian peers including PT Berau Coal Energy, Winsway Enterprises Holdings Ltd. and Hidili Industry International Development Ltd. have reneged on their dollar bonds as China’s slowdown crimped demand for the fuel used in firing up steel plants.

“The development is not surprising given the distressed state of the company,” said Trung Nguyen, a credit analyst in Singapore at Lucror Analytics Pte. “It has been burning cash rather fast when coal prices keep declining. We expect bondholders to take a big haircut when the company restructures its debt.”

Proposed Forbearance

A call to the main line of Mongolian Mining went unanswered.

The 8.875 percent March 2017 notes traded at 18.3 cents on the dollar to yield 302 percent as of 9:50 a.m. in Hong Kong, according to Bloomberg-compiled prices. The securities have lost about 14 cents this year, having already crashed by 75 cents in the preceding three years. They were sold at par, or 100 cents, in 2012.

Mongolian Mining said it hasn’t received any notice from the lenders or bondholders demanding immediate repayment, according to the filing. The company, which took the loan facility to repay another debt, has proposed forbearance agreements with the banks, and will discuss the matter with the steering committee of the note holders and their advisers, it said.

“Lenders will find it increasingly difficult to keep extending the term of the existing facilities, while there is little hope of turning the company around under the heavy debt load,” said Nguyen of Lucror Analytics. “Perhaps by not extending the facilities, and forcing a debt restructuring, the company can emerge with a healthier balance sheet and can start to focus on its operation.”