China Shanshui Cement last week launched a $300 million three-year loan into general syndication for the first time, potentially relieving some of its pressing debt funding needs but still leaving it with a refinancing gap.
The cement company has previously secured bilateral US dollar loans but this is the first time it is tapping the syndicated loan market.
The margin for the loan is 330bp above Libor and Deutsche Bank, HSBC and JP Morgan are the lead arrangers.
For a commitment of $40 million and above, the all-in pricing is 405bp over Libor and for a commitment of $30-39 million, it is Libor plus 400bp. For commitments of $20-29 million, the all-in pricing of 390bp over Libor and for commitments of $10-$19 million, all in pricing is 380bp over Libor. The loan has an average life of 2.67 years and syndication is expected to close in June.
The loan is expected to help ease some of China Shanshui's refinancing pressure but the company still faces a shortfall in funds to meet its debt obligations. According to an S&P report in April, China Shanshui has Rmb4.9 billion ($786 million) of short-term debt maturing this year. That includes Rmb500 million of bills due in June and a further Rmb1 billion due in November 2014. China Shanshui also has a Rmb1.5 billion dim sum bond that matures in July this year.
In a May 9 report, CreditSights said the syndicated loan is a “mild credit positive” for the group. However, it notes that China Shanshui’s liquidity remains weak with only Rmb1.3 billion of cash as at December 31, 2013.
With mainland Chinese lenders reining back lending and less willing to rollover debt, China Shanshui faces pressure on its debt ratings. S&P put China Shanshui Cement’s BB- long-term rating on creditwatch negative in April citing the growing refinancing risk.
“Considering the weak demand and excess capacity in the cement industry and Chinese banks tightening on lending, China Shanshui Cement may face difficulties in obtaining refinancing options to cover its short-term debt obligations," S&P analyst Huma Shi told FinanceAsia.
She said the company had recently announced a Rmb1.2 billion medium term-note issue which improves its liquidity but is insufficient to meet its debt obligations for this year.
China Shanshui's revenue grew 2.3% year-on-year to Rmb16.5 billion in 2013 while its net profit fell 33% to Rmb1 billion.
According to one Hong Kong-based syndicated loan banker, loan pricing for Chinese companies has been rising as Chinese lenders cut back on lending. "We have seen increased supply from Chinese companies and the Hong Kong Monetary Authority has introduced a stable funding requirement which means that banks need to increase their deposits," said the banker. "This is raising the cost of lending," he said.
