October 30, 2020

Investors in China Bond Brawl deserve speedy recovery

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BN-LN235_shansh_J_20151202032345By Jasper Moiseiwitsch From The Wall Street Journal

Tianrui Group’s victory in battle for Shanshui Cement should bring bondholders back from the brink

For China Shanshui Cement’s beleaguered bondholders, a near-death experience should turn out to have a somewhat happy ending.

Shareholders on Tuesday voted to replace Shanshui’s board, installing in its place handpicked representatives from Shanshui’s main cement-making rival and biggest shareholder, Tianrui Group. This included appointing the chairman of China Tianrui Group Cement, Tianrui’s listed subsidiary, as Shanshui’s chairman.

The episode could prove a decisive win for Tianrui in a prolonged shareholder battle it fought against a handful of China’s cement makers.

Bondholders unaccustomed to China’s rough-and-tumble offshore bond market would be forgiven for checking their necks for whiplash. Shanshui’s $500 million bonds due in 2020 have skyrocketed in value to near 90 cents on the dollar, according to Lucror Analytics, after a precipitous fall to the mid-50-cent area a few weeks ago, when the company defaulted on loans and filed for liquidation in a Cayman Islands court where the listed company is domiciled.

ENLARGE
The reason for the rebound: The appointment of new leadership triggers a change-of-control clause in the bonds, compelling early repayment of the bonds at face value. Tianrui says it will make good on this.

Bondholders may feel they aren’t out of the woods completely. Days before the shareholder vote, the old Shanshui board said it started legal action in China against Tianrui, alleging Tianrui paid 500 million yuan ($78.2 million) to minority shareholders as an inducement to vote its way. If Shanshui can persuade a court that the payments occurred and were inappropriate, the shareholder vote could be annulled.

More plausibly, courts will see the legal challenge as a last-ditch effort by the old Shanshui board to derail the Tianrui takeover. That would be a similar outcome to the old board’s move to seek liquidation, which the Cayman judge rejected. The move was more of a ploy to prevent Tianrui taking over than something done with creditors’ interests in mind.

The company now has a month to redeem the bonds. Yet bondholders remain skittish, with the bonds still trading at a discount to the redemption value of 101 cents on the dollar. With signs pointing to Tianrui solidifying its victory, that skittishness seems overplayed.

IMAGE: A China Shanshui Cement operation in Shandong province; the company’s board was voted out by shareholders Tuesday, good news for bondholders. PHOTO: REUTERS

For more on this story go to; http://www.wsj.com/articles/investors-in-china-bond-brawl-deserve-speedy-recovery-1449045548

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