SINGAPORE (July 13): Century Sunshine Group (CENSUN) announced on July 3 that it had defaulted on the $101.8 million SGD-bond as the company had not been successful refinancing the bonds. It has also received demands from two bank creditors for the repayment of borrowings of CENSUN and its subsidiary amounting to some HKD 51.0 million ($9.1 million).
With that, the CENSUN caught the attention of OCBC Credit Research.
CENSUN is listed on the Hong Kong Stock Exchange. The listed entity is incorporated in the Cayman Islands and the SGD bonds are issued by CENSUN. The stock has a market cap of HKD 261 million as at July 9.
Together with its subsidiaries, CENSUN has two main business segments: magnesium products and fertilisers, focusing on the Chinese market. The magnesium business is operated by Rare Earth Magnesium Technology Group (REMT), a separate HKSE-listed company with a market cap of HKD658 million as at July 9. CENSUN has a 72.3%-indirect stake in REMT.
In a July 9 unrated report, analyst Ezian Foo says, “CENSUN had been facing an unresolved maturity wall as captured in our credit update dated Nov 11, 2019. On Mar 4, 2020, CENSUN along with nine other issuers under our coverage were placed on a monitor list of companies with stretched liquidity amidst the COVID-19 outbreak.”
OCBC ceased coverage on CENSUN on July 4 as a proposed convertible bond issue announced in April 2020 to raise HKD300 million which was deemed as credit positive did not come through.
CENSUN-consolidated cash balance (inclusive of cash at REMT) was HKD823.1 million as at Dec 31, 2019, with the bulk of the cash located onshore.
On May 26, 2020, the company announced that its unsecured offshore debt of CENSUN-standalone (excluding REMT) amounted to HKD 794 million and is subjected to repayment or refinancing between June 2020 and December 2020, this was dominated by CENSUN 7.0% ‘20s with an outstanding amount of $101.8 million.
“In November 2019, we had opined that CENSUN was facing a large maturity wall in the form of HKD1.1 billion in mostly bank debt coming due in the 12 months from June 30, 2019 to June 30, 2020 with the CENSUN 7.0%’ 20s due soon after. Based on our preliminary analysis then of short term uses and sources of funds, CENSUN was facing a gap of HKD1.2 billion (a gap of HKD844 million if it defers all capex),” says Foo.
Rather than fully paying down its obligations, a sizeable amount of CENSUN’s upcoming obligations (including bank debt) would have needed to be refinanced/rolled-over.
The analyst notes that bank creditors are demanding repayment, this indicates that the company has lost the support from a number of its bank lenders, which is likely to aggravate a debt restructuring process without new sources of external financing.
In April 2020, CENSUN announced a proposed convertible bond issuance of HKD300 million. This along with the cash balance would have been just enough to cover its near-term debt due. But on July 3, CENSUN announced the termination of the subscription agreement for this convertible bond.
Hypothetically, should CENSUN go into liquidation, Foo thinks that the bondholder’s recoveries may be in the form of shares in CENSUN and the guarantors, such as the the offshore investment holding companies.
“Recoveries via other means may still be possible although in our view these are likely to only happen in a negotiated outcome where there is a willingness for existing and/or new shareholders to see the company continuing as an on-going concern, rather than liquidation,” adds Foo.
While provisional liquidators will be appointed (assuming court approves), board and existing management team are expected to still continue with day-to-day control of the business and direct the debt restructuring process.
