Shanshui's Dollar Bonds Jump by Record After Two Loan Offers

  • Asia Cement, Tianrui make conditional offers to extend loans
  • The pledge from Asia Cement raises the stakes, Lucror says

China Shanshui Cement Group Ltd.’s dollar bonds jumped by a record after two of its major shareholders made conditional offers to extend loans following the manufacturer’s bond default.

Asia Cement Corp. has $800 million in financing available to support any Shanshui recapitalization, subject to any proposals to be decided by the liquidators, Clifford Ng, a partner in Hong Kong at Zhong Lun Law Firm which is advising Asia Cement, said in an interview Wednesday. Shanshui’s largest shareholder Tianrui Group Co. said in a Tuesday filing it would lend funds if its proposed restructure of Shanshui’s board occurs and triggers early repayment of Shanshui’s $500 million of 2020 bonds. The notes rose 11.9 cents to 81.9 cents as of 5:24 p.m. in Hong Kong.

Shanshui became at least the sixth Chinese firm to default in the local bond market this year as a shareholder tussle hurt financing. The firm, which missed payment on a 2 billion yuan ($313 million) note last week, faces a hearing Wednesday on a liquidation application filed in the Cayman Islands, where it is incorporated. Bloomberg reported earlier Wednesday that Asia Cement had agreed in a filing to Cayman courts to make the credit line available to recapitalize Shanshui pending an agreement on its restructuring proposal.

The Asia Cement offer "raises the stakes after Tianrui’s offer last evening to help redeem the 2020 notes,” said Charles Macgregor, head of Asian high yield research in Singapore at Lucror Analytics. “The matter is now firmly in the hands of the court and hopefully they can give some direction this week."

ACC Offer

Shanshui’s CFO Henry Li said when reached by phone that he had heard from his lawyers that ACC has made a filing in the Cayman Islands saying ACC is willing to lend to Shanshui. Li didn’t give any specifics on the size of the loan.

“ACC filed an affidavit offering financial support for Shanshui Cement,” Ng at Zhong Lun Law Firm said in phone interview. “We can confirm that the refinancing power is coming from both ACC and China National Building Material Co. It’s an offshore funding facility.”

Equity Positions

CNBM holds a 16.7 percent stake in Shanshui, while Asia Cement has 20.9 percent and Tianrui holds 28.2 percent. 

ACC’s offer is a capital injection so will translate into a larger equity position, though details are still being worked out, a person familiar with the matter said earlier Wednesday, asking not to be identified because the details are private. Some $500 million would be used to repay 2020 notes in full and the balance would support onshore operations and trade creditors, according to the person.

Lawfirm Akin Gump Strauss Hauer & Feld is representing a group of bondholders in the restructuring, according to a press release on Nov. 11.

Shanshui has considered proposals for repaying debt including new share issues, asset restructuring and asset securitization, it said in a Monday filing. It also said that if the Cayman court grants the application and appoints provisional liquidators, they’ll have the right to choose and implement proposals to repay Shanshui’s debts.

ABS

“Our support for any proposal depends on what the provisional liquidators decide is the best solution for creditors,” Ng representing Asia Cement at Zhong Lun Law Firm said. “We want to emphasize that the financial capability we offer will allow China Shanshui Cement to deal with offshore creditors, especially the March 2020 bondholders.”

Zhongrong International Trust Co. said Shanshui’s unit repaid 200 million yuan on Nov. 13 of loans which were among underlying assets for asset-backed securities issued by Bank of Tianjin Co. in July, according to a statement dated Nov. 17 on Chinabond’s website. China Bond Rating Co. on Nov. 12 placed the ABS on a watch list. The Shanshui unit’s debt accounted for 11.89 percent of the total underlying assets, according to China Bond Rating.

Shanshui plans to hold a meeting for investors in its defaulted onshore bonds as well as its onshore notes due February 2016, February 2017 and May 2017, according to a statement from China Merchants Bank Co., lead underwriter of the defaulted securities.

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