Yingde Gases plunges again as management control fight continues

Industrial gas maker drops sharply before suspension after ousted directors win court order, company reveals that a firm has sent letters expressing interest in general offer

PUBLISHED : Friday, 23 December, 2016, 5:17pm
UPDATED : Friday, 23 December, 2016, 10:10pm

Shares of Shanghai-based industrial gas supplier Yingde Gases fell as much as 6.6 per cent to their lowest in just over four months in a brief trading session yesterday after the firm said ousted directors had obtained a court order to bar the firm from executing a revised share-sale plan that the other directors deemed essential for repaying a HK$820 million bank loan.

Trading was suspended at 10.24am. Yingde issued a stock exchange filing after the stock market closed on Friday, saying each of its directors had received on Thursday at about 11pm a letter of interest from StellaS Capital (Hong Kong) for a “possible general offer [to buy all of the firm’s shares]”.

A similar letter was received by the company’s directors at about 2pm on Sunday, it added. It did not provide details on the background of StellaS.

“The board … takes the view that neither the first nor the second letter was a bona fide offer [under Hong Kong’s takeover law], it would be prudent to hold a board meeting on an urgent basis to discuss [the matter],” it said, adding that trading of its shares would be suspended until the board meeting scheduled on December 31.

Yingde shares last traded at HK$2.87 yesterday, 5.59 per cent down from Thursday, having fallen as low as HK$2.84.

The company, which supplies oxygen, nitrogen, hydrogen and argon to China’s steel, non-ferrous metals and chemicals sectors, said late on Thursday in a filing to Hong Kong’s bourse that former chairman Sun Zhongguo and former chief operating officer and executive director Trevor Strutt had won an order from the Grand Court of the Cayman Islands on Tuesday.

The order restrained Yingde from “taking any steps to implement” a plan to raise HK$604.8 million by selling shares to Shenzhen-listed waste-water treatment firm Beijing OriginWater Technology. The board approved the plan on Sunday without the attendance of Sun and Strutt.

The court order also bars the board from holding any board meeting with less than seven “clear days” notice to Sun and Strutt, and from issuing “any additional shares”.

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The share sale plan announced on Sunday was downsized from an original plan to sell HK$1.2 billion worth of Yingde shares to OriginWater, after Sun and Strutt alleged in an open letter to Yingde’s shareholders that OriginWater was acting “in concert” with current chairman Zhao Xiangti.

The accusation led to “ongoing enquires” from the Securities and Futures Commission, which would be “time-consuming” and would delay the share sale, Yingde said last week.

The board subsequently reduced the size of the share sale so OriginWater’s stake in Yingde after the planned shares sale would be 12.92 per cent instead of 20.17 per cent under the original plan.

Sun and Strutt argued that the combined stake of OriginWater and Zhao under the original plan would exceed the 30 per cent threshold at which a mandatory offer to buy all the shares they did not hold would be triggered.

Sun and Strutt accused OriginWater and Zhao of wanting to take control of Yingde without paying a premium for the control.

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Under the revised share-sale plan, Sun could remain the largest shareholder with a 17.94 per cent stake, followed by 12.92 per cent of OriginWater, Zhao at 11.2 per cent and Strutt at 8.86 per cent, and 4.68 per cent of a trust owning shares for an employee options scheme.

Yingde said in the Thursday filing that Moody’s Investors Service, Fitch Rating and S&P Global had all downgraded the credit rating of the company and its corporate notes, which was expected to have an adverse impact on its financing activities.

Strutt yesterday told the South China Morning Post by phone on Friday that since he had not been able to access company emails and attend board meetings after he was ousted last month, he was not up to date on Yingde’s latest refinancing plans.

“Before that, as far as I know, Yingde’s revenues were sufficient to meet its expected financial obligations,” he said.

A Yingde representative told the Post the share sale was only one of the financing channels being considered by the board, adding that the firm had told the bank of its confidence in being able to raise the money to repay the loan due on January 3.

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Moody’s on Thursday downgraded Yingde’s “senior unsecured rating” on its bonds by one notch to “Caa1” and placed it on review for further downgrade, citing “the increasing probability of default on its offshore payment obligations if there are no immediate actions securing concrete funding arrangements”.

It was the second downgrade by the rating agency in two weeks due to repeated delays to its planned share sale.

The agency’s senior analyst Gerwin Ho said Yingde needed to plug a funding gap in the offshore financing market.

S&P on December 15 also downgraded Yingde’s long-term corporate credit rating to “B-” from “BB” citing the “imminent risk” from its obligation to repay a 700 million yuan (HK$783 million) offshore loan due on January 3.

“The shareholders’ disagreement over control of the company will overshadow Yingde’s operations and financing. It will reduce creditor’s confidence on providing long-term funding,” S&P’s credit analysts said on December 15.

“In our view, Yingde’s management and governance has deficiencies,” S&P said. “We believe the company’s risk management is inadequate and control over operations is uncertain.”