Shanshui Cement New Loans Suspended Amid Shareholder Scrap

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China Shanshui Cement Group Ltd. said some banks have halted new loans and suppliers are demanding immediate repayment after a court put one of the cement maker’s main shareholders into receivership.

Some joint venture partners have also said they wanted to review their relationship with the company, Shanshui Cement said in a statement Wednesday in Hong Kong.

The firm’s finances are likely to be impacted by the actions amid lawsuits against China Shanshui Investment, which controls a quarter of the cement maker, said Shanshui Cement. The dispute, fueled by disgruntled employee shareholders, led to Hong Kong’s High Court last month appointing receivers for more than 40 percent of China Shanshui Investment, in the nation’s latest corporate governance conflict.

“The development is very credit negative,” said Trung Nguyen, credit analyst at Lucror Analytics in Singapore. “Any dispute among shareholders is discomforting to creditors.”

Shanshui Cement’s $500 million 7.5 percent bonds due 2020 fell 5.6 cents to 87.6 cents on the dollar as of 3:45 p.m. in Hong Kong, paring earlier losses of as much as 10 cents. The stock has been suspended from trading since April.

Not Leaving

Shandong-based Shanshui Cement said last month that more than 2,400 employees have filed lawsuits in Hong Kong since August against an ex-director Li Yanmin, and founder Zhang Caikui, who owns 38.5 percent of China Shanshui Investment. The claims include a misappropriation of share interests those employees owned.

The court subsequently appointed receivers over 43.3 percent of China Shanshui Investment’s shares not owned by the two individuals, Shanshui Cement said in a May 21 filing.

Henry Li, the cement maker’s head of finance, said some employees involved in the lawsuit had told banks and suppliers that Zhang Caikui and Chairman Zhang Bin were leaving the firm. Li said both men are still with the company.

The cement industry is struggling to recover amid a slowing property market. Fitch Ratings Ltd. downgraded Shanshui Cement in April to BB-, three levels below investment grade, citing weak cement prices. The company’s average selling price for its products has fallen around 10 percent this year compared to the same period in 2014, according to Shirley Han, credit analyst at UBS Group AG in Hong Kong.

More Pressure

“The employee law suits will negatively impact the daily operations of Shanshui Cement and its future business development,” said Winnie Guo, an analyst at Fitch in Hong Kong. “The latest actions taken by lenders and suppliers/contractors due to the ongoing law suits would put further strain on the liquidity of the company.”

Shanshui Cement had 1.2 billion yuan of cash against short-term debt of 4.3 billion yuan at the end of 2014, according to Bloomberg-compiled data.

In April, the company repaid early a $400 million bond due in 2017. It’s also been forced to redeem a 2016 bond of the same amount after China Tianrui Group Cement Co. increased its stake to 28.2 percent, triggering a change of control clause, adding to liquidity pressure. Li said the company is on track to complete the redemption.

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