Displaying items by tag: Shanshui Cement

People matter in cement companies. Just ask Bruno Lafont, the originally proposed CEO of LafargeHolcim before the merger plans between Lafarge and Holcim changed in mid-2015. Another example is Zhang Bin, the chairman of Shanshui Cement. Some of the shareholders at Shanshui Cement are working hard to remove him. The next attempt has been scheduled for 1 December 2015.

Shanshui Cement, one of the biggest Chinese cement producers, called for the liquidators this week possibly in response. It decided to apply for provisional liquidation after determining that it would default on onshore debt payments due on 12 November 2015. Earlier in the month it had announced doubt whether it could pay its debts.

The scale of this liquidation is monumental for the cement industry. It is broadly similar to a producer at least the size of Dangote going bust. Shanshui Cement is one of China's top ten cement producers. It defaulted on a US$314m onshore debt payment on 12 November 2015.

Based on Global Cement Directory 2015 data, Shanshui Cement is the seventh largest cement producer in the country with 15 cement plants and a cement production capacity of 30.5Mt/yr. Shanshui Cement itself reports that it has a production capacity of 102.6Mt/yr making it the country's fourth largest cement producer. In its 2014 annual results Shanshui Cement reported sales revenue of over US$2.4bn. Its net profit was over US$48m. Sales and profits were down year-on-year in 2014 compared to 2013 and its interim report for 2015 reported the same downward trend. Sales revenue fell by a third to US$793m year-on-year for the first half of 2015. In 2014 its total debt was reported to be US$2.5bn with a gearing ratio of 56.9%, a relatively high figure leaving it vulnerable to decreasing profits.

As the Wall Street Journal and others have reported, the situation has as much to do with corporate politics as it does with over-borrowing. Hot on the heels of Shanshui's liquidation announcement came an offer of help to pay the debts from local rival Tianrui Group if its attempts to change the board of Shanshui were finally successful. Tianrui became the largest shareholder of Shanshui in April 2015 when it increased its stake to 28%. In the process it beat China National Building Material Company and Asia Cement Corporation, who hold 16.7% and 20.9% stakes in Shanshui respectively.

The heart of the Shanshui debacle is the 'key man' clause as reported by Reuters. Borrowing to the company is dependent on current chairman Zhang Bin retaining his position. As soon as he leaves it triggers the repayment of offshore bonds worth US$500m. Normally not due for payment until 2020, the bonds contain a clause that forces the company to sell them within 30 days should Zhang Bin depart.

Shanshui seems likely to be able to pay its debts judging from its sales revenue, assets and the strength of its main shareholders. However, it has chosen to default for the moment. The question for analysts watching this from outside China is whether it masks deeper problems in the Chinese economy as growth continues to slow and industrial overcapacity lingers. Shanshui is the sixth mainland Chinese company known to have defaulted on a bond this year, according to Bloomberg. It's also likely to be operating at a cement production utilisation rate of around 50%.

If the Shanshui Cement situation is more to do with markets than personalities, then it may represent an alarming acceleration of the slowdown of the Chinese economy for the cement industry. If personalities matter more, then the situation is a battle comparable to the politics on the television show 'Game of Thrones.'

China: The largest shareholder in Shanshui Cement, Tianrui Group, has said that it could help solve the debt woes of Shanshui Cement, if it is successful in a bid to change the company's board at an extraordinary general meeting on 25 November 2015, according to Bloomberg.

Shanshui, which is at the centre of a shareholder scrap for control, failed to pay US$314m of onshore notes due on 12 November 2015. It is at least the sixth Chinese company to default in the local bond market in 2015 as borrowers struggle amid an economic slowdown. Shanshui, which is incorporated in the Cayman Islands, has decided to file a winding up petition and seek the appointment of provisional liquidators there. Two banks have asked for early repayment of Shanshui's loans and the default scare has spread to the asset-backed securities market.

Li Heping, Vice Chairman of Tianrui, said that Shanshui's filing for a winding-up petition has raised potential costs for his company because it now faces finding a debt solution. Tianrui, which holds 28% of Shanshui, would get 'nothing in return' from its stake if it didn't help, he said. China National Building Material Company and Asia Cement Corporation are also shareholders in Shanshui with 16.7% and 20.9%, respectively.

Shanshui's Chief Financial Officer Henry Li said that noteholders could try and get their money back by asking the court to liquidate Shanshui's assets, which would be the worst outcome. In addition to the US$314m that Shanshui failed to repay, the company has another US$800m onshore notes outstanding, according to Bloomberg-compiled data.

China: Shanshui Cement has decided to apply for provisional liquidation after determining that it will default on onshore debt payments due on 12 November 2015, a sign that Chinese authorities have become willing to allow weak firms to fail, according to Reuters.

The privately-owned company had been struggling to raise funds as its operations have been hit by overcapacity in the sector. "It's a sign that bailouts are not for everybody and that the slowing economy is taking its toll on the non-investment grade sector," said Warut Promboon, Chief Rating Officer at Dagong Global Credit Rating.

Shanshui Cement said that the petition would constitute a default for US$500m in bonds due in 2020 and trigger an accelerated repayment clause. Its shares have been suspended from trading since April 2015.