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Winsway Buys Back Debt After Holders Agree Sweeter Bond Deal

Winsway Coking Coal Holdings Ltd., a Chinese importer of coal for steelmakers, is buying back debt for as little as a third of its issue price after bondholders agreed to a sweetened tender offer.

Bondholders of the company, which Moody’s Investors Service warned in September had a liquidity buffer of less than three months, tendered $153.6 million, or 33 percent, of its outstanding 8.5 percent notes due April 2016 for repurchase, according to a statement to the Hong Kong stock exchange yesterday. The company had offered to buy back all of the notes. About 68.6 percent of holders agreed changes to the bond’s covenants after Winsway last month modified terms of the buyback and extended its deadline.

Winsway, whose Hong Kong-listed stock plunged as much as 72 percent from a January high, offered as little as 32.5 percent of the debt’s value at issue to buy back the bonds, according to an earlier statement dated Aug. 20. The buyback “is expected to provide a better recovery rate for the holders than in liquidation,” the coal provider said in a document to bondholders obtained by Bloomberg News.

“Their business model has been broken and they definitely need to find a new way to make money,” said Annisa Lee, a credit analyst at Nomura Holdings Inc. “With such a low tender rate, the debt burden hasn’t been substantially reduced. The good thing is that they probably have more cash now as they’re using less cash to tender for the bonds, but it’s more like a near-term positive and a long-term concern.”

Mounting Losses

The company on Sept. 25 amended its offer, allowing investors to agree changes to the note’s terms while keeping their bonds. Under the earlier plan, bondholders couldn’t consent without tendering. Holders of some 35.3 percent of Winsway’s bonds picked this option, yesterday’s release shows. Such investors receive $25 for every $1,000 of bonds, regulatory filings show.

Winsway rose as much as 6.5 percent today, the most in a month, and was unchanged at 62 Hong Kong cents as of 2:37 p.m. local time. The benchmark Hang Seng Index fell 1 percent.

Uncertainty about the company’s capacity to repay principal on the notes because of a sustained decrease in coking coal prices triggered the buyback plan, Winsway said in documents to bondholders obtained by Bloomberg News in August. The company reported a first-half net loss of HK$763 million ($98.4 million), according to data compiled by Bloomberg.

The changes involve bond indenture amendments removing terms that limit debt and dividends, tender documents show. At least 50 percent approval from holders of the notes was needed to complete the deal, Winsway said Sept. 25.

Selective Default

Standard & Poor’s said the buyback is viewed as a distressed exchange that’s “tantamount to a default” and lowered Winsway’s long-term corporate credit rating to SD, or selective default, from CC.

“We believe that under Winsway’s distressed financial situation, the company’s access to bank credit may be uncertain,” S&P credit analyst Huma Shi said in an e-mailed statement.

Noteholders wishing to keep some of their notes were slated to receive $325 for every $1,000 tendered, and could retain 25 percent of the bonds, the company said in the Sept. 25 statement. Alternatively, they could receive $425 for every $1,000 of principal, with the company buying back all the tendered notes, the filing shows. Both would receive additional fees.

Weak coal prices put companies including Winsway at an increased risk of default, Moody’s said in a Sept. 24 report. The rating services company is “particularly concerned” about Hong Kong-based Winsway, the report said.

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