- Shanshui's international investors face risk of cross default
- Cement firm's offshore notes plunged to three-month lows
International investors in Chinese corporate debt face fresh risks after a cement producer said it may default on onshore notes, which could lead to nonpayment on its dollar securities.
China Shanshui Cement Group Ltd. isn’t sure it can repay 2 billion yuan ($315 million) of local securities due Nov. 12 after a shareholder tussle stymied financing, it said in a filing Thursday. Failure to repay those notes would trigger a default on its $500 million 7.5 percent bonds due 2020, according to the statement. The dollar debentures dropped to a more than three-month low of 87.7 cents as of 3:57 p.m. in Hong Kong.
Global investors have been scarred by defaults from Chinese companies this year in industries including property and commodities as economic growth slows and anti-corruption investigations continue. Kaisa Group Holdings Ltd. reneged on obligations in April amid a probe. Coal trader Winsway Enterprises Holdings Ltd. failed to pay interest on dollar bonds for a second time this year in October, and Hidili Industry International Development Ltd. didn’t repay its dollar notes due Wednesday.
“Recently, there have been more cases of Chinese commodities companies having trouble to repay debt,” said Raymond Chia, the head of fixed-income research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. “But if a relatively healthy cement company ended up having problems, the sentiment to China’s commodity space will surely go down.”
Shanshui has been mired in a shareholder fight for control since April amid President Xi Jinping’s call to cull weaker firms in industries grappling with overcapacity. Its largest shareholder Tianrui International Holding Co. has been trying to change Shanshui’s board. Meanwhile its two other shareholders China National Building Material Co. and Taiwan’s Asia Cement Corp. have announced they are considering the terms of a possible offer.
Shanshui cited its “current cash position and the difficulties it faces in raising financing" in its filing Thursday. While the company has been seeking funding since June, all the financial institutions it contacted “have expressed concern in relation to the uncertainty of the management,” it said.
Tianrui has proposed to remove Shanshui board members including Chairman Zhang Bin. Shanshui will hold an extraordinary general meeting on Nov. 25 to consider the resolutions proposed by Tianrui.
“The company is probably issuing the statement as a way to try to speed up the help from shareholders ahead of the EGM on Nov. 25,” said Sandra Chow, an analyst at CreditSights Inc. "Maybe their shareholders will help them find some financing.”
All major shareholders including Tianrui have the ability to help repay debts for Shanshui, Li Heping, vice chairman of Tianrui Group Co. said in an interview Thursday.
Henry Li, chief financial officer of Shanshui, said when reached by phone Friday that the Thursday announcement was not a tactic to gather shareholder help before the EGM.
Fitch Ratings cut its credit score on Shanshui further into junk territory to C from B- on Friday.
“Shanshui’s debt trouble highlights the risks investors, both global and domestic, face when refinancing becomes difficult amid management changes,” Chen Kang, a Shanghai-based fixed-income analyst at SWS Research Co., wrote in a note Friday.