Shanshui Won't Have to Redeem Notes as Chairman to Remain

Updated on
  • Resolution to remove Zhang was voted 99.9% against in meeting
  • Company probably won't have to redeem its 2020 dollar bonds

Shareholders of China Shanshui Cement Group Ltd. voted to keep Chairman Zhang Bin at a meeting in Hong Kong Tuesday amid a fight for control of the nation’s seventh-largest cement maker that’s been dragging on since April.

The Shandong-based group held an extraordinary general meeting during which a proposal from its largest shareholder -- peer Tianrui International Holding Co. -- to get rid of Zhang was rejected after receiving a 99.9 percent no vote, according to statement to Hong Kong stock exchange today. Tianrui International, which has a 28.16 percent interest, has been trying to change Shanshui’s management and had another failed attempt in July.

Shareholder clashes may become more common in Asia’s biggest economy as President Xi Jinping encourages the culling of weaker firms in industries that are grappling with overcapacity. Two of Shanshui’s other shareholders -- China National Building Material Co. and Taiwan’s Asia Cement Corp., which combined hold 37.6 percent -- said last month they’ll make a joint conditional cash offer to acquire all the outstanding shares they don’t already control. The duo reiterated on Oct. 9 they’re still considering that course of action.

“It’s a complicated situation as there are too many entities trying to gain control,” Annisa Lee, a credit analyst at Nomura Holdings Inc., said. “The outlook on the credit depends on what Tianrui, China National Building Material and Asia Cement will do next, if they appoint more Tianrui officials or others on the board.”

No Redemption

The outcome means Shanshui won’t have to redeem its $500 million of 7.5 percent 2020 notes because a change of control clause hasn’t been triggered, Lee said. It wasn’t clear whether Shanshui would have even been able to buy back the notes at 101 percent, given the company’s limited liquidity and uncertainty over its ownership, analysts at independent research firm CreditSights Inc. said.

The 2020 bonds slid 0.82 cents to 89.66 cents on the dollar as of 10:15 a.m. in Hong Kong, according to prices compiled by Bloomberg. They were sold to investors at 98.98 cents in March. Shares in Shanshui have been halted from trade since April.

Shanshui had initially called the extraordinary general meeting to also vote on the appointment of Li Liufa, a founder of China Tianrui Group Cement Co., as chairman of Shanshui. But it said Monday it hasn’t yet received a notice regarding that, making the proposed appointment no longer applicable.

Shareholders voted 95.1 percent in support of the removal of Zhang Caikui, Zhang Bin’s father, as an executive director at Tuesday’s meeting, according to today’s exchange filing.

Li Cheung Hung and Wu Xiaoyun also had 99.9 percent of votes cast for their removal. Li was the joint company secretary of Shanshui while Wu is a professor of the University of Nankai.

“We see the partial removal of directors as a potential warning sign by the major shareholders,” Mervyn Teo, a credit analyst at Lucror Analytics Pte, wrote in a research note. “The removal did not trigger the change of control in Shanshui’s 2020 bonds. That said, we believe this may only be the start of changes and that Zhang Bin’s position is somewhat tenuous.”

(Updates with analyst comments from fourth paragraph.)
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