Shanshui Management Ousted From Unit as Tianrui Seeks Control

  • Tianrui Vice Chairman Li takes over as chairman of unit
  • Shanshui asks lawyers to take legal actions against Zhangs

The management of China Shanshui Cement Group Ltd.’s operating unit was ousted two days after executives of its parent were dismissed, in a move analysts said underscores efforts by the company’s biggest shareholder Tianrui Group Co. to solidify control.

Shandong Shanshui Cement Group Ltd. founder Zhang Caikui, Chairman Zhang Bin and Chief Financial Officer Henry Li were among key managers whose positions were terminated effective Dec. 3, according to a filing by Shanshui on Thursday. Tianrui’s Vice Chairman Li Heping has succeeded Zhang Bin to become chairman of the unit. 

China Shanshui became the latest defaulter in the onshore bond market in November after a shareholder fight hurt financing, which triggered a cross-default on the company’s $500 million offshore notes due 2020. The company said in the same filing that it’s given instructions to legal adviser Wilkinson & Grist to initiate legal actions against Zhang Bin and Zhang Caikui in relation to alleged illegal conduct and breach of fiduciary duties. 

“The removal of Shandong Shanshui’s top management will allow Tianrui to gain more control on Shanshui from the operation and shareholder level going forward,” said Ross Lee, a credit analyst at Bank of China Hong Kong Ltd. “This is positive for Shanshui’s dollar bondholders as it shows Tianrui’s commitment to Shanshui is growing.”

Roller-coaster Ride

China Shanshui’s $500 million of 7.5 percent 2020 notes have been on a roller-coaster ride in recent months, having plunged to as low as 63 cents on the dollar on Nov. 12. The debentures were down 0.2 cent to 89.8 cents as of 12:25 p.m. in Hong Kong.

The volatility has prompted some bondholders to sell the notes amid the intensifying shareholder fight. Tianrui said in a Nov. 17 filing it would lend China Shanshui funds if its proposed restructure of the cement company’s board occurs and triggers early repayment of the 2020 securities. Tianrui succeeded in removing the board including Chairman Zhang Bin in an extraordinary general meeting on Tuesday.

“China’s bond market remains a bit of a mystery still,” said Michelle Kuo, a fund manager in Taipei at Union Securities Investment Trust who sold Shanshui bonds in her two funds before they defaulted. “Shanshui was quite popular with foreign investors but it was not easy for us to figure out what Shanshui shareholders want to do in the conflict.”

China Tianrui Group Cement Co., the Hong Kong-listed company under Tianrui Group, said in a Thursday filing that its controlling holders have granted the company the option to buy China Shanshui shares from Tianrui, which holds a 28.2 percent stake in China Shanshui. 

“It seems like eventually Tianrui Group wants to transfer the Shanshui stake to the listed entity,” said Mervyn Teo, a credit analyst at Lucror Analytics.

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