China Shanshui Cement Group Ltd., which is embroiled in the nation’s latest corporate governance conflict, could run into a cash crunch in two months, according to a company official.
“To communicate with the banks and restore confidence is our number one priority right now,” Henry Li, the group’s head of finance, said in a phone interview. “Otherwise the company will run into liquidity problems in two months.”
Investors have increased scrutiny of corporate governance and accounting in China after a string of defaults this year, including the first by a developer on offshore dollar bonds when Kaisa Group Holdings Ltd. missed payments in April. Shanshui, based in the northeastern province of Shandong, is involved in lawsuits over shareholdings between its employees and the founding family.
“This may still be the beginning,” Trung Nguyen, a Singapore-based analyst at research firm Lucror Analytics, wrote in a report. “There may be further headline risks ahead, which may lead to a debt acceleration spiral, similar to Kaisa.”
Last week Shanshui said a court putting one of its main shareholders partly into receivership led to a halt in new loans. Standard & Poor’s downgraded the company by four levels to CCC Wednesday, citing weak liquidity.
Shanshui’s $500 million of 7.5 percent notes due March 2020 notes gained 2 cents to 84.3 cents on the dollar as of 4:03 p.m. in Hong Kong, according to Bloomberg-compiled prices. The notes were trading as high as 96.6 cents just two weeks ago.
In order to improve liquidity, the company will also cut capital expenditure and increase sales, Li said. The cement maker is on track to pay off its $400 million 2016 notes in a redemption triggered in April by a change of control clause after China Tianrui Group increased its stake to 28.2 percent. Shanshui shares have been suspended since April 16.
After completing the redemption, the company will engage with its main shareholders Taiwan’s Asia Cement Corp., state-owned China National Building Material Co. and Tianrui on how to resolve its free float problem, Li said. Potential solutions could be issuing new shares and selling convertible bonds, he said.
Tianrui’s stake acquisition had pushed Shanshui’s free float down to just above nine percent, below the 25 percent minimum the Hong Kong stock exchange requires in order for companies to maintain their listing status.