Shanshui Bonds Rise as Holders Pin Hopes on Payment by Tianrui

  • Company's 2020 notes increased to highest since Nov. 5
  • China Shanshui to hold shareholder meeting on Dec. 1

China Shanshui Cement Group Ltd.’s dollar-denominated notes rallied ahead of an extraordinary general meeting on Tuesday, as bondholders pin their hopes on the company’s largest shareholder repaying the securities on Shanshui’s behalf. 

The cement maker’s $500 million 7.5 percent 2020 bonds rose 3.5 cents on the dollar to 88.5 cents as of 1:10 p.m. in Hong Kong, the highest in more than three weeks, according to Bloomberg-compiled data. Tianrui Group’s Vice Chairman Li Heping said in an interview on Nov. 13 that Tianrui would help fix Shanshui’s debt problems if its proposal to change the firm’s board passes at the next extraordinary general meeting.

Shanshui, which is at the center of a shareholder scrap for control, failed to pay 2 billion yuan ($313 million) of onshore notes earlier this month, becoming at least the sixth Chinese firm to default in the local bond market this year. That triggered cross default on its 2020 dollar notes, which traded as low as 63 cents earlier November. Also this month, Shanshui failed to liquidate its business after a Cayman Islands court rejected its application to do so.

China Shanshui Investment Co., another Shanshui shareholder controlled by ex-employee owners of the company’s stock, is likely to support Tianrui in Tuesday’s EGM, said Ross Lee, credit analyst at Bank of China Hong Kong Ltd.

“Shanshui’s bond are rallying today, which shows investors are pinning their hopes on Tianrui repaying Shanshui’s offshore bonds,” Lee said. "Many investors believe Tianrui’s proposal to remove Shanshui’s board will be voted through as CSI is likely to stand on the side of Tianrui."

Shareholder Stakes

Tianrui controls 28.2 percent of Shanshui while CSI has a quarter. Shanshui’s two other major shareholders, Taiwan-based Asia Cement Corp. and state-owned China National Building Material Co., own 20.9 percent and 16.7 percent, respectively. ACC and CNBM, which had earlier considered terms of a general offer for Shanshui, said on Nov. 27 that they won’t be attending the Tuesday EGM.

A call to Tianrui Group’s capital market manager Mark Liang went unanswered. There was no immediate reply to texts to Tianrui Vice Chairman Li.

Investor Interests

Shandong Shanshui Cement, a subsidiary of Hong Kong-listed China Shanshui Cement, began legal proceedings against Tianrui Group on Nov. 26. Shandong Shanshui discovered Tianrui and related persons made payments of over 500 million yuan to certain individuals who are minority holders of China Shanshui Investment and who commenced petition of receivership of China Shanshui Investment, according to a statement.

Shanshui has reported matters to the relevant authority and may take further actions to protect the interest of its shareholders, the filing said.

“We believe that bondholder interests are best served by a ACC/CNBM partnership gaining control given we have concerns over Tianrui’s corporate governance,” said Charles Macgregor, the head of Asian high yield research in Singapore at Lucror Analytics. “That said, Tianrui proclaims to have the wherewithal to repay Shanshui’s 2020 notes.”

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