China Shanshui’s Shareholder Tianrui Seeks Chairman Ouster

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China’s latest shareholder dispute is deepening as the largest owner of China Shanshui Cement Group Ltd. pushes to oust the chairman, a change that the company said would cause it to default on debt.

China Tianrui Group Cement Co., which holds a 28.2 percent stake in Shanshui, sent a letter to shareholders Thursday calling for a vote to remove Chairman Zhang Bin and founder Zhang Caikui, according to a Tianrui official. Shanshui said the removal would be a “change of control event,” requiring it to make an offer to repurchase all outstanding notes within 30 days, at at cost estimated at more than $921 million.

“The company anticipates that it would not have enough cash resources to complete the repurchase offer within the limited timeframe,” leading to a default, Shanshui said in a Hong Kong stock exchange filing after the close on Friday. This would trigger a cross-default on additional debt, it said.

Investors are increasing scrutiny of corporate governance in China after defaults, including the first by a developer on offshore dollar notes when Kaisa Group Holdings Ltd. missed payments in April. Shanshui said last month that more than 2,400 employees have filed lawsuits in Hong Kong since August against an ex-director Li Yanmin and founder Zhang, claiming that Zhang misappropriated shares.

Tianrui’s attempt to remove the executives is meant to protect Shanshui shareholders after negative headlines concerning the cases, according to the Tianrui official, who asked not to be identified because the matter is private.

Hong Kong securities regulation requires Shanshui, which is listed in the city, to host a shareholder meeting within 21 days starting from the letter Thursday, the official said.

Shanshui is seeking Cayman Islands legal advice on the legality and procedural regularity of Tianrui’s requisition notice for the meeting, according to the filing. It will make additional announcements.

Debtwire reported earlier on Tianrui’s preparations to call a shareholder meeting to vote on replacing the chairman.