China’s Shanshui Cement weighs up fund raising options following debt default

Shanshui Cement says it is exploring a range of option to raise funds after defaulting on a 2 billion yuan bond last week

PUBLISHED : Tuesday, 17 November, 2015, 12:30pm
UPDATED : Tuesday, 17 November, 2015, 12:30pm

Shanshui Cement, which last week defaulted on a 2 billion yuan bond owing to difficulty in raising financing amid a fight for control between its two largest shareholders, is considering various ways to raise funds.

These include issuing new shares to existing or other investors, restructuring part of its assets and securitising some of its assets by creating mortgages, the company said in a filing to the Hong Kong Exchanges & Clearing late on Monday.

“Each of these proposals is for the purposes of allowing the group to raise finance so it can repay the debt the group owes to its creditors both in and outside of China,” it said.

“If the Cayman Court grants the application and appoints joint provisional liquidators (JPLs), the JPLs will have the right to choose and implement one of these proposals or another proposal for the purposes of repaying the group’s debt.”

Shanshui failed to meet repayment obligations arising from 2 billion yuan of bonds last Thursday, and filed a petition to the Cayman Court to appoint provisional liquidators to help it devise a restructuring plan. Shanshui is the sixth Chinese company known to have defaulted on a local bond this year, according to Bloomberg. A hearing is scheduled to be heard on Wednesday.

Shanshui’s Hong Kong-listed shares have been suspended from trading since April 17.

The financial difficulty arose after Tianrui Group, a major cement maker in Henan and Liaoning provinces led by Li Liufa, became Shanshui’s largest shareholder in April after raising its stake to 27.6 per cent from 10.5 per cent.

The change in control triggered a demand from creditors for Shanshui to redeem US$400 million of bonds issued by the firm, which when combined with its repayment of 1 billion yuan of short-term debt, drained a large chunk of its cash holdings at a time when fierce competition drove down cement prices in the over-supplied mainland cement market.

Shanshui struggled to obtain fresh financing after Tianrui attempted twice in June and September to remove nearly all of Shanshui’s board of directors and appoint new ones.

Tianrui succeeded in removing Shanshui’s founder Zhang Caikui from the board, but failed to remove his son and chairman Zhang Bin. The Zhangs owns 25.1 per cent of Shanshui through China Shanshui Investment.

Tianrui late last month again requested the removal of all Shanhui directors and the appointment of new ones. A shareholders meeting is scheduled on December 1 to consider the matter.

Shanshui said such request, if implemented, would trigger a change of control under the terms of a separate US$500 million bond issued by the firm, which could result in a demand for the firm to repurchase the debt.