Winsway Bonds Gain as Company Seeks Capital After Default

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Winsway Enterprises Holdings Ltd.’s dollar bonds rose from a record low as the Chinese coal importer asks more bondholders to sign a standstill agreement while it seeks additional capital to revive the business.

The company’s $309.3 million of 8.5 percent 2016 notes gained 0.59 cents to 28.593 cents on the dollar as of 4:30 p.m. in Hong Kong, Bloomberg-compiled prices show. The securities, which touched 28 cents last week, have declined more than 9 cents this year and tumbled 45 cents in the previous two as a coal market slump dragged Winsway into financial distress. Its shares slumped 13.6 percent, the most since August 2011.

Winsway failed to pay a $13.15 million semi-annual coupon on May 8 after the expiration of a 30-day grace period, according to a Hong Kong exchange filing late on Friday. A standstill agreement has been entered into with some bondholders under which they won’t demand accelerated payment while Winsway seeks a buyer or injection of equity. That will expire on May 31 unless extended by mutual agreement.

“We expect the equity injection is contingent on the successful completion of the debt restructuring,” Laura Zhai, a director at Fitch Ratings Ltd. in Hong Kong, said by phone Monday. “For new investors to come in, with the debt situation, it might be difficult.”

Winsway is the second company to default in China’s dollar bond market this year after developer Kaisa Group Holdings Ltd. A 55 percent slump in coking-coal prices in four years through 2014 coincided with a slowdown in the world’s second-biggest economy. Shenzhen-based Kaisa missed two U.S. currency note coupon payments last month and has 65 billion yuan ($10.5 billion) of interest-bearing debt.

‘Significant Percentage’

Winsway is seeking the participation of 75 percent of bondholders in its 2016 notes to the debt standstill, Beijing-based spokeswoman Laura Shi said by phone Monday. It said in its exchange filing Friday that “a standstill agreement has been entered into in relation to a significant percentage of the outstanding principal amount of the senior notes.”

Based on the bonds’ sale document, bondholders with at least 25 percent of the notes can demand immediate repayment in the event of a default. The number of requests made so far falls below that threshold, according to Shi.

Fitch downgraded Winsway to restricted default from C, according to a May 10 statement, and said the company had planned to utilize the 30-day grace period to complete a debt restructuring plan. “Based on the current outlook for the company’s financial performance, Fitch believes the likelihood Winsway will be able to refinance the bond has worsened following the covenants waiver and debt exchange in 2013,” the ratings company said.

A bondholder group has formed and is being advised by Houlihan Lokey (China) Ltd., with Akin Gump Strauss Hauer & Feld LLP hired as its legal adviser.

Not Tested

Winsway is encouraging more bondholders to come forward to join the bondholder group, according to its May 8 statement.

Winsway sold $500 million of the 2016 securities in 2011. It bought back some of them from the market and via a tender offer in 2013. Its cash had dwindled by 78 percent to HK$438.6 million ($56.6 million) as of Dec. 31 from a year earlier, data compiled by Bloomberg show.

Stock in Winsway fell to as low as HK$0.238 today in Hong Kong before closing at HK$0.242.

“The risk for U.S. creditors is China’s bankruptcy law is pretty much untested,” Kevin Starke, an analyst who specializes in distressed investments at CRT Capital Group Inc. in Stamford, Connecticut, said on Friday. “It’s difficult to get access to assets because they are a couple of levels removed. Complicated structural charts are making it very difficult to invest in distressed here in the U.S., let alone in China.”

Indonesian miners PT Bumi Resources and PT Berau Coal Energy are also restructuring $2.325 billion of their bonds post the coal price slump. SouthGobi Resources Ltd., a Mongolian miner, has also sought more funding to stay afloat. Sixteen of the 58 defaults globally in 2014 involved companies in natural resources, Standard & Poor’s said in a January report.

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