China Shanshui Cement defaults on 1.8 b yuan bond

The default is the second in two months following failure to repay a 2 billion of yuan onshore bonds in November

PUBLISHED : Monday, 25 January, 2016, 5:01am
UPDATED : Monday, 25 January, 2016, 5:01am

Debt-laden China Shanshui Cement Group has defaulted on a mainland-issued bond, its second in two months, dealing a blow to rival Tianrui Group’s plan to take over the company as part of Beijing’s push for consolidation of the overcapacity-plagued cement sector.

Hong Kong-listed China Shanshui’s principal subsidiary Shandong Shanshui said it has defaulted on a 1.8 billion yuan (HK$2.13 billion) three-year bond carrying an annual interest rate of 5.4 per cent that matured on Thursday.

The

development has pushed China Shanshui, the nation’s seventh-largest cement maker, closer to bankruptcy, as its earlier debt default triggered multiple lawsuits from creditors that have already seen some of its assets frozen or put into impending auctioning.

“The underlying cause of Shandong Shanshui’s debt problems is unresolved disputes over shareholders’ control, which restricted its fund-raising channels,” Shandong Shanshui said in a statement posted Thursday on chinabond.com.cn, the main platform for mainland bonds issuers’ information disclosure.

Since the estimated value of the company’s assets far exceeds its debt, it expects court-ordered assets sales to bring in less proceeds than claims made by creditors, it added.

In November, Shandong Shanshui defaulted on a 2 billion yuan debenture as a fight for control prevented the firm from obtaining the financing it needed.

Henan province-based Tianrui Group, which last April launched a hostile takeover by snapping up its shares in the open market and raised its stake to 28.2 per cent to become China Shanshui’s largest shareholder, has made a high profile take over attempt after ousting its whole board in two shareholders’ votes late last year.

That was after it amassed a 10.5 per cent stake in China Shanshui in February, by paying a hefty premium over the prevailing market price.

China Shanshui’s new chief executive Li Heping, who recently stepped down as chief executive of Tianrui Group’s Hong Kong-listed unit China Tianrui Group Cement, told the Post last month Tianrui Group will “take over all [of China Shanshui’s] companies, repay the debt, and rebuild the business.”

It succeeded in taking over more than 100 factories, except for five plants and its headquarters in Jinan, Shandong, since China Shanshui’s ousted ex-chairman and founder Zhang Caikui and his son Zhang Bin had “illegally occupied” the premises, the Tianrui-led new board said late last month.

It also said the Zhangs had “illegally retained” Shandong Shanshui’s seals, chops and books, so that the Jinan Administration for Industry and Commerce refused to approve the new board’s application to change Shandong Shanshui’s directors.

The shareholder brawl and subsequent ousting of the entire board, including directors representing Taiwan-listed Asia Cement, which has a 20.9 per cent stake, and state-backed China National Building Material, which owns 16.7 per cent, resulted in multiple debt defaults.

So far 17 creditors have filed law suits at various mainland courts alleging non-payment of debt amounting to 2.8 billion yuan, Shandong Shanshui said in a statement on January 12.

Some of Shandong Shanshui’s assets have been frozen under order of various courts, the company said last week. These include various bank accounts, land, properties and shares in subsidiaries frozen.

China Shanshui has 7 billion yuan of outstanding bonds issued on the mainland, according to director Stephen Liu Yiu-keung.

The board makeover also triggered the early redemption of a US$500 million offshore bond.

China Shanshui offered on January 14 to buy back the bond, saying it has received assurances from Tianrui Group that it would help China Shanshui raise sufficient funds to do so. Tianrui Group has declined to disclose where it will obtain the funding from.

Asia Cement and China National Building Material said in July they will consider to buy all the China Shanshui shares they did not already own, but have yet to make a formal offer.