Hidili Seeks Loan Relief as Downgrades Crimp Bond Chances

Hidili Industry International Development Ltd. is turning to lenders to ease its cash strain after four rating downgrades make it harder for the Chinese coal mining company to sell bonds overseas.

Losses at the Sichuan-based miner widened in the first half of this year as average clean coal selling prices fell about 18.5 percent, it said in a Hong Kong stock exchange filing Aug. 8. Cash dwindled to 193.7 million yuan ($31.5 million) on June 30 from 322.2 million yuan at the end of 2013, just enough to service the next semi-annual coupon on its $380 million 8.625 percent notes in November.

“The company is getting new facilities” and is unlikely to face difficulty rolling over existing debt, Cathy Huang, a Chengdu, Sichuan-based spokeswoman, said via e-mail Aug. 15 in response to questions from Bloomberg News. “Do you think the market can offer us good and attractive terms with our existing rating?” she said, asked whether Hidili planned to issue new bonds to repay its $380 million of senior debt.

Standard & Poor’s has downgraded Hidili four times in the past two years, most recently in April to CCC with a negative outlook. That’s eight levels below investment grade, signaling non-payment risk. The company is among 12 of 50 locally listed miners with debt-to-equity ratios over 100 percent, Bloomberg data show.

Rising Debt

Hidili shut its wholly-owned coking plant Panzhihua City Hidili Coke Co. last year and booked a 257.5 million yuan loss. It’s one of 2,000 mines earmarked by Premier Li Keqiang to close by the end of 2015 to cut pollution and overcapacity.

Hidili’s November 2015 notes fell 0.97 cents on the dollar to 59.05 cents as of 5:05 p.m. in Hong Kong, Bloomberg-compiled prices show, pushing the yield up 194 basis points to 61.391 percent. The securities have lost 13 percent this year while corporate distressed debt in emerging markets gained 8.6 percent, based on a Bank of America Merrill Lynch index.

Hidili hasn’t sold dollar-denominated securities since tapping investors in October 2010 for the 8.625 percent bonds. Those notes are the only time it’s raised debt in the U.S. currency, data compiled by Bloomberg show.

Funding Plan

“The company needs to show how it plans to term out its liabilities,” Cheong Yin Chin, a high-yield analyst in Singapore at CreditSights Inc. said by phone today. “I don’t think they can sell bonds, onshore or offshore, given their financial condition. Investors are wary of the mining sector.”

Total debt at Hidili rose 6.7 percent to 8.627 billion yuan as of June 30 from six months ago, according to Bloomberg-compiled data. Most of its 2.42 billion yuan of bank loans are secured by collateral and securities and may be rolled over without difficulty, Huang said in the e-mail.

While Hidili appears to have converted some of its short-term loans into longer-term debt, a liquidity crunch remains, Cheong said in her report on Aug. 8. Total debt has increased, while cash in hand isn’t sufficient to repay obligations due within 12 months, she wrote.

Shares in Hidili closed down 3 percent at HK$0.98 in Hong Kong, the lowest since July 25. The stock has lost 17 percent this year.

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