Mergers & Acquisitions

Shanshui shareholders adjourn controversial shares issuance

Shareholders voted to adjourn the approvals on a controversial shares placement plan aimed at restructuring the debt of one of China’s largest corporate defaults, but which would have diluted their holdings

PUBLISHED : Saturday, 18 February, 2017, 3:56pm
UPDATED : Saturday, 18 February, 2017, 3:56pm

China Shanshui Cement’s shareholders voted to adjourn a controversial stock placement, after the largest stake owner and hostile purchaser prevailed upon minority investors to postpone their decisions on the plan to restructure debts at one of the country’s largest corporate defaults.

Shareholders with 53.75 per cent of voting power approved an adjournment at a Friday extraordinary general meeting on the issuance of HK$475 million of new shares, according to Shanshui’s filing to the Hong Kong Stock Exchange.

The adjournment creates a kink in the debt restructuring plan by Shanshui, whose shares had been halted since April 2015 to give management time to work out 17.63 billion yuan (US$2.57 billion) of liabilities by June 2017.

China’s seventh-largest cement maker of 2014, Shanshui had the dubious honour of being the country’s largest bond default, after failing to make payments on 2 billion yuan of onshore obligations in November 2015.

The Shandong-based company said last October it would place between 910 and 950 million new shares, or 21.94 per cent of its enlarged share capital, at HK$0.50 per share, to increase its public float above the minimum regulatory level of 25 per cent.

The issue price, up to 92.1 per cent of discount to Shanshui’s last traded price of HK$6.29, drew opposition from shareholders. The amount raised from the issuance wouldn’t be sufficient to cover the company’s liabilities, they said.

Worse, the plan would dilute the holdings of major shareholders.

Two of Shanshui’s largest shareholders -- Tianrui Group Co. and China Shanshui Investment Co. -- have asked the cement producer’s chairman Stephen Liu Yiu Keung verbally to adjourn the extraordinary meeting until further notice, according to the filing.

Henan-based Tianrui, parent of Hong Kong-listed China Tianrui Group Cement, is the largest shareholder of Shanshui, after launching a hostile takeover in open market, leading to the trading halt. Tianrui’s shares would have been diluted to 21.98 per cent, from 28.16 per cent by the issuance of new shares.

Shanshui’s second-largest shareholder is Shanshui Investment, controlled by former chairman Zhang Caikui and his son. Their stake in Shanshui would be diluted to 19.59 per cent after the issuance, from 25.09 per cent.

Shanshui’s third-largest shareholder Asia Cement also weighed in, initiating several requests for Shanshui’s management to disclose more accurate financial information and prove the rationality of its placement offer before voting. Taiwan-based Asia Cement’s stake would be diluted to 16.36 per cent from 20.96 per cent.

China National Building Material’s stake will shrink to 13.01 per cent from 16.67 per cent.

The company will hold another extraordinary meeting on March 8 to vote on Asia Cement’s requests.