Copeinca Bondholders Snub ‘Futile’ Consent as Deadline Looms

Corporacion Pesquera Inca SAC bondholders are calling upon China Fishery Group Ltd. to redeem its bonds as it pushes ahead with what some say is a futile attempt to relax the notes’ terms and conditions.

Singapore-listed China Fishery is this week trying for a third time to get noteholders of its Lima-based unit known as Copeinca to agree to a deal whereby the business in Peru would guarantee as much as $1.2 billion of debt at the parent level. The new deadline is 5 p.m. New York time on Sept. 18 after two earlier ones -- on July 30 and Aug. 21 -- passed without bondholders granting the majority approval required.

“They’re trying to give us less than what we already have and nobody cuts off one’s own nose,” Patrik Kauffmann, a money manager in Zurich at Aquila & Co., said by e-mail on Sept. 10. His firm manages about $10.7 billion of assets, including Copeinca notes. “They should call the bond. The consent process is likely to be a futile exercise.”

A third failure to win over bondholders could renew pressure on China Fishery’s credit ratings. Standard & Poor’s cut China Fishery and Copeinca by one level to B, or five steps below investment grade, last month, citing refinancing risks. Moody’s Investors Service said in July it will review its B2 rating if the consent process fails.

‘Completely Inadequate’

China Fishery is seeking to amend covenants on Copeinca’s $250 million of 9 percent February 2017 notes so that the world’s third-largest fishmeal producer and holder of the biggest anchovy quota permit in Peru can guarantee parent-level debt, including $650 million of credit lines, $300 million of other bonds due July 2019 and future borrowings, according to a July 17 consent solicitation document. It’s offering $10 for every $1,000 in face value of bonds held, or 1 cent on the dollar as a consent fee.

Geoffrey Walsh, a Hong Kong-based spokesman for China Fishery, declined to comment in an e-mail yesterday. He said last month when the second deadline passed that the extra time will allow bondholders to become more familiar with the group business.

“The solution is just to refinance their bonds and construct a bond that works for them,” David K. Sherman, the founder of New York-based Cohanzick Management LLC, said by phone Sept. 11. “The consent terms are completely inadequate. They won’t be successful in getting the requisite approval.”

Buyback Scrapped

Cohanzick has more than $1.5 billion in assets under management, according to its website, and advises the RiverPark Short Term High Yield Fund, which owns some of Copeinca’s notes.

China Fishery, headquartered in Hong Hong, spent more than $782 million taking over Copeinca last year. Copeinca’s $2.5 billion of assets as at the end of March made up more than 90 percent of the group’s total, filings show.

According to S&P, China Fishery funded the acquisition in part with loans that banks say must now be guaranteed by Copeinca. China Fishery got a four-year $650 million credit facility in March from China Citic Bank International Ltd., Rabobank International, DBS Bank Ltd., Standard Chartered Plc and HSBC Holdings Plc, according to a March 24 statement. The proceeds were meant to help redeem the Copeinca notes, among other things. That buyback plan however was scrapped in May in favor of the consent solicitation process.

The yield on the 9 percent debentures was little changed at 10.198 percent as of 3 p.m. in Hong Kong after dropping 22 basis points last week, Bloomberg-compiled prices show. The notes, which could have been called since Feb. 10 at 104.5 cents on the dollar, are trading at 97.495 cents and have risen 2 percent over the past month. They can be called at 102.25 cents from Feb. 10 next year, Bloomberg data show.

China Fishery

China Fishery’s 9.75 percent July 2019 notes fell 0.1 cent to 95.466 cents and the yield rose three basis points to a three-month high of 10.973 percent. They’ve lost 0.82 percent since Aug. 15.

“The bond prices are driven more now by the deteriorating environment in which China Fishery is operating,” said Kauffmann, who co-manages $640 million of bonds at the Swiss private bank. “Copeinca generates the biggest part of group earnings, so for it to share more of the debt burden is absolutely unfavorable to bondholders.”

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