China Shanshui Cement Group Ltd.’s bonds tumbled to record lows after the company said it could default on its debt obligation because of an attempt to oust its chairman amid a deepening boardroom rift.
Its $500 million of 7.5 percent notes due March 2020 dropped 2.6 cents to 81.9 cents on the dollar as of 5:00 p.m. in Hong Kong on Monday, after sliding 12.1 cents in the past two weeks. The yield surged 85 basis points to 12.73 percent.
China Tianrui Group Cement Co., which holds a 28.2 percent stake in Shanshui, has proposed to install four people -- including its chairman Li Liufa and Chief Executive Li Heping -- to the cement maker’s board, according to an exchange filing Monday. Tianrui has called for a vote to oust Shanshui chairman Zhang Bin and founder Zhang Caikui, an official said last week.
The removal of board members including its chairman would constitute a “change of control” event that requires the company to repurchase its outstanding bonds, Shanshui said in a filing late Friday. It won’t have enough cash to redeem $921 million of its notes, leading to a default, it said.
In its bond prospectus, Shanshui said that change of control would occur if Zhang Bin ceases to be chairman. It also listed other events, such as adoption of a plan relating to the liquidation of the company, that would constitute a change of control.
Tianrui is aware that any removal of Zhang Bin could trigger a change of control, but doesn’t have access to Shanshui’s finances to assess whether it would have the ability to pay off debts, according to a Tianrui official. Tianrui will stick to its plan and hope to make some decisions for Shanshui if it obtains some board seats, the official said, asking not to be identified because the matter is private.
Shanshui is paying off its $400 million of 2016 notes in a redemption triggered in April by a change of control clause after Tianrui increased its stake to 28.2 percent. The move reduced Shanshui’s free float to below the 25 percent threshold needed to maintain its listing status.