China is headed for its latest corporate default amid slowing economic growth, as a cement maker yesterday said it will fail to pay bond investors and will file for liquidation.
China Shanshui Cement Group Ltd (山水水泥) “will be unable to obtain sufficient financing on or before” a maturity date today on its 2 billion yuan (US$314 million) of 5.3 percent securities, it said in a statement.
The company, which is incorporated in the Cayman Islands, has decided to file a winding-up petition and application for appointment of provisional liquidators with the courts there, it said.
That “will also constitute an event of default” on its US$500 million 7.5 percent dollar bonds due in 2020, according to the filing.
Investors have been scarred by defaults from Chinese firms this year in industries including property and commodities. Shanshui would be at least the sixth company to renege on obligations in the nation’s onshore bond market this year, after Shanghai Chaori Solar Energy Science & Technology Co (超日太陽能) became the first last year.
“For offshore creditors, recovering value from Shanshui’s dollar bonds will be a long process, given that onshore creditors will be all over the company first in the case of liquidation,’’ said Zhi Wei Feng, a credit analyst at Standard Chartered PLC in Singapore.
The company’s 2020 dollar debentures slid US$0.2 to a record low US$0.62 as of 2:07pm yesterday in Hong Kong.
An ad hoc committee of noteholders has been formed to engage with Shanshui about the 2020 securities, according to a statement from law firm Akin Gump Strauss Hauer & Feld.
Shanshui chief financial officer Henry Li said the company is still fundamentally sound.
It hopes to talk to creditors to restructure the debt, he said.
Shanshui has been mired in a shareholder fight for control since April amid Chinese President Xi Jinping’s (習近平) call to cull weaker firms in industries grappling with overcapacity. Its largest shareholder, Tianrui International Holding Co (天瑞國際控股), has been trying to change Shanshui’s board.
Its two other shareholders, Taiwan’s Asia Cement Corp (亞洲水泥) and China National Building Material Co (中國建築材料集團), have announced they are considering the terms of a possible offer.
Shanshui is “playing with fire with disregard for all stakeholders,” said Leong Wai Hoong, a senior Asian high-yield bond manager in Singapore at Nikko Asset Management Co, who has sold all holdings in the cement maker from funds under his management.
“There are lessons here on the quality of management and the cost of shareholder tussles,” Leong said.
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