China Shanshui Cement Trimming Debt Gets Tick From CreditSights

China Shanshui Cement Group Ltd. is seeking to refinance debt and trim capital expenditure by half in 2014 after earnings fell for a second year, according to CreditSights Inc.

The cement maker, which had 6.9 billion yuan ($1.1 billion) of short-term debt including loans and corporate bonds at the end of last year, plans to use proceeds from a newly issued domestic medium-term note to repay 900 million yuan due today. Management is still considering how to refinance a 1.5 billion yuan bond which matures in July.

“One option could be to raise funds onshore at an interest cost of around 6 to 6.5 percent and repatriate the funds to Hong Kong,” Singapore-based high-yield analyst Sandra Chow wrote in a March 27 report. “Another option could be a syndicated loan and initial guidance from bankers suggests an all-in cost of 5 to 6 percent.”

Policy makers in China plan to curb industrial pollution and promote consolidation in the automobile, cement and steel sectors to cut excess capacity. The nation’s banks are reining in lending amid heightened concern about bad loans and defaults in the world’s second-largest economy.

Shanshui Cement’s capital expenditure is targeted to be 2.1 billion yuan this financial year versus 4.2 billion yuan in 2013, according to the research firm.

Bondholder Relief

“The cutbacks should come as a relief to bondholders,” Chow said. “Given the challenging outlook for cement prices, we see little benefit in heavy expansion.”

Shanshui Cement’s total debt was 16.5 billion yuan as of Dec. 31 from 13.5 billion yuan at the end of 2012, company data cited by CreditSights show. Net income fell to 1 billion yuan from 1.5 billion yuan over the same period.

The company breached a covenant on one of its loans from International Finance Corp. last year and paid “around $20,000 to $30,000” to obtain a waiver, according to yesterday’s note.

Shanshui Cement raised its cement prices earlier this month. At least three new highway and expressway projects in Shandong, the coastal province where it’s based, could start construction before the end of the year while supply from Hebei, a neighboring province, could fall because the government is closing cement factories there, CreditSights said.

CreditSights raised its recommendation on the company’s $400 million of 8.5 percent 2016 dollar bonds to marketperform from underperform, and kept its underperform recommendation on another $400 million of 10.5 percent 2017 notes.

The 2016 notes were trading at 102.182 cents on the dollar to yield 7.376 percent yesterday compared with 104.211 cents and a yield of 6.559 percent at the start of the year, Bloomberg-compiled prices show.

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