China Shanshui Cement Group Ltd. said two of its largest shareholders are considering a takeover bid in the latest escalation of a fight for control over the company.
Taipei-based Asia Cement Corp. and China National Building Material Co., which together own about 38 percent of Shanshui Cement, are considering a cash offer to acquire the shares they don’t already control, according to statements to the Hong Kong stock exchange Tuesday.
Asia Cement and China National Building may be seeking to scuttle an attempt by Tianrui Group to gain control of the cement maker ahead of a key meeting on July 29. Tianrui, the single largest shareholder with a 28.2 percent stake, wants to remove seven board members, including Chairman Zhang Bin, and appoint its nominees at the meeting.
Asia Cement and China National Building are opposed to the motion.
Shanshui’s 7.5 percent $500 million bonds due 2020 rose 3.18 cents on the dollar Wednesday morning to 93.71 cents as of 9:15 a.m. in Hong Kong, the highest since June 9, according to Bloomberg-compiled prices. Shares of the company are suspended in Hong Kong.
Zhang’s removal could trigger a “change of control” event, allowing holders of the $500 million bonds due March 2020 to demand immediate repayment at 101 percent of face value. China Shanshui Cement has said it won’t have enough funds to repay the debt in time.
Weak Prices
Building material producers and construction companies are struggling in China amid a slowdown in the real estate market. Fitch Ratings cited weak cement prices when it downgraded Shanshui Cement in June to B+, four levels below investment grade. The company’s average product sales price has fallen around 10 percent this year, compared to the same period in 2014, according to Shirley Han, an analyst at UBS AG in Hong Kong.
Shandong-based Shanshui Cement said in May that more than 2,400 employees have filed lawsuits in Hong Kong since August against an ex-director Li Yanmin and founder Zhang Caikui, who owns 38.5 percent of its second-largest shareholder China Shanshui Investment. The claims include a misappropriation of share interests those employees owned.
Shanshui Cement said some banks halted new loans and suppliers demanded immediate repayment after Hong Kong’s High Court placed more than 40 percent of Shanshui Investment shares into receivership until the employee claims are ruled on.
Tianrui boosted its stake in Shanshui Cement in April, causing the free float to fall below the threshold needed to maintain a listing in Hong Kong. The shares, which have a market value of $2.74 billion, have been halted from trading since.
No binding agreement on the possible takeover offer has been entered by any of the parties and terms have not been finalized, according to the Tuesday statements.
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