SouthGobi Wins China Payment Deferral to Buy Time for Funding

Mongolian coal miner SouthGobi Resources Ltd. said it won a deferral on a key interest payment, staving off a threat to its viability and buying time to boost cash flows.

The due date on $7.9 million owed to sovereign wealth fund China Investment Corp. has been reset to Nov. 19, SouthGobi, which is based in Vancouver, said in a statement Tuesday. The company had warned that failure to pay CIC could have resulted in bankruptcy.

The company also appointed a new chief executive officer, Yulan Guo, to replace Ted Chan. Guo is a director of SouthGobi’s biggest shareholder, Novel Sunrise Investments Ltd., which itself is owned by state-controlled China Cinda Asset Management Co. Ltd.

SouthGobi shares, which had been suspended in Hong Kong, fell as much as 7.6 percent, and at 10:10 a.m. were down 4 percent at HK$3.80.

Once one of the nation’s top foreign companies, SouthGobi has seen its market value collapse due to falling coal prices and a difficult investment climate in Mongolia. In 2010, it had a capitalization of over $2 billion, which has since fallen to $120 million.

Mongolia’s economic growth, which topped out at 17.3 percent in 2011, fell to 7.8 percent last year. The Asian Development Bank has forecast 3 percent for this year.

Foreign investment has taken a similar arc, amid a slew of high profile spats with investors, including SouthGobi. The company was the subject of a government probe that in January found it guilty of tax evasion and ordered to pay $18 million.

Delisting Review

The CIC payment stems from a $500 million convertible note issued in 2010. Another installment comes due in November.

In exchange for the payment extension, SouthGobi said it agreed to pay CIC a deferral fee of 6.4 percent a year on the outstanding installment. The convertible note itself carries an interest rate of 8 percent.

Further deferrals may be granted based on “positive performance and operational achievements,” according to its statement.

SouthGobi also faces delisting from the Toronto Stock Exchange and the company has requested a 30-day extension of the delisting review, which would “provide sufficient time for the implementation of the next stage” of its funding plan.

That includes new coal offtake agreements and agreeing on loans to keep the company afloat. The company produced just 1.56 million metric tons of coal in 2014 compared to 4 million tons in 2011.

Further changes to its management and board of directors are expected, SouthGobi said.

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