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China debt crunch

China's struggling Tianqi Lithium seals deal to extend loans

Chairman pledges $620m in shares to win breathing space from creditors

Tianqi Lithium still owes $3.08 billion from its purchase of a large stake in Chile's SQM. Chile has the world's largest lithium reserves. (Photo by Nozomu Ogawa)

HONG KONG -- China's struggling Tianqi Lithium has secured two years' breathing room on some $3.08 billion in debt owed on its purchase of a large stake in a Chilean miner as part of an aggressive global buying spree.

To secure the debt rollover, Chairman Jiang Weiping and his family have had to pledge more than 100 million of their shares in the company as collateral, according to Tianqi's filing late Monday to the Shenzhen Stock Exchange.

Ahead of the announcement, Tianqi shares rose 5.7% on Monday to 40.48 yuan, valuing Jiang's pledge at about 4.05 billion yuan ($619.5 million). The stock slipped back 5.3% on Tuesday.

Although lithium is a key ingredient for batteries used to power everything from smartphones to electric vehicles, Tianqi has strained to pay off bills from its purchases because of the collapse in prices for the strategic mineral since the deals were signed.

The new debt rollover covers some $1.88 billion that Tianqi was supposed to pay back on Nov. 29 to a lending syndicate led by state-owned China CITIC Bank as well as a further $1.2 billion due in November 2022. Both lending periods have been extended for a maximum of two years, with the interest rate premium over the London Interbank Offered Rate to edge up by no more than 0.1 percentage point.

The deal is "another step forward for Tianqi to resolve its debt crisis," said Daiwa Capital Markets analyst Dennis Ip, who has a "buy" rating on its stock. Declines in LIBOR will offset any increase in finance costs from the small rise in the interest rate premium, he added.

The debt rollover is contingent on Tianqi completing a separate $1.4 billion deal reached earlier this month to sell 49% of a holding company with a controlling stake in Greenbushes, the world's largest lithium mine, and a nearby processing facility in Western Australia state to IGO Ltd.

Tianqi would be required to put $1.2 billion of the proceeds toward debt repayments. IGO has demanded that Jiang extend a $117 million loan to Tianqi as part of its deal with the company. Jiang and his family control about 37% of Tianqi's stock, or 543.83 million shares, in total.

Tianqi shareholders are due to vote on the IGO deal on Jan. 5, with the two companies aiming to close the transaction by June, pending regulatory approval from Australia and China as well as the U.K., where the holding company is domiciled.

Tianqi's borrowings to the lending syndicate will immediately come due if the IGO deal falls through without an approved replacement. Tianqi has already pledged virtually all its valuable assets to its creditors, including its 23.8% stake in the Chilean company, SQM.

The rollover hinges on the notion that lithium prices will rebound, as Tianqi "will need to be able to generate enough cash flow to service debt," said James Shi, a distressed debt analyst at financial information company Reorg Research.

Although Shi believes the debt rearrangement is "definitely credit positive," due to substantial asset pledges, "it would likely be difficult for Tianqi to raise any meaningful amount of additional secured financing in near future for refinance or capital expenditure purposes."

For his loan to Tianqi, Jiang is taking the money from the investment vehicle that holds his controlling shareholding in the company. This entity, which is 88.6% owned by Jiang and 10% by his daughter Jiang Anqi, has sold 88.61 million Tianqi shares over the past six months.

The sales yielded about 2.13 billion yuan in proceeds and reduced the entity's stake in Tianqi to 30.05% from 36.04%. Jiang's loan is unsecured, with a five-year term and an interest rate below 5%.

Shi also pointed to the risk that the lending syndicate has shouldered. While the new deadline for the $1.88 billion was pushed back to Nov. 25, 2022 -- three days before the maturity of Tianqi's $300 million bond, seemingly prioritizing the cash flow for its payment -- the extension of the $1.2 billion loan to November 2024 could add further uncertainty.

CITIC Bank, which is providing that part of the loan, is now "facing more counterparty risk by giving Tianqi more breathing room before the full rebound of lithium prices," Shi said.

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