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China debt crunch

Tianqi Lithium cancels $2.5bn share sale after exchange objects

Shenzhen bourse questioned how purchase by chairman's company would be financed

A worker at a SQM lithium mine processing plant. Tianqi Lithium resolved to sit out SQM's latest capital raising. (Photo by Nozomu Ogawa)

HONG KONG -- Struggling Chinese miner Tianqi Lithium has abruptly canceled its plan to issue up to $2.45 billion in new shares to its top stakeholder after the Shenzhen Stock Exchange queried the move.

Although lithium is a key ingredient for batteries used to power everything from smartphones to electric vehicles, Tianqi Lithium has strained to pay off bills from a string of global acquisitions because of a steep fall in prices for the strategic mineral since the deals were signed.

The company last month narrowly avoided defaulting on $1.88 billion of loans used to finance the purchase of a minority stake in mining company SQM of Chile.

To secure two year's breathing room on a total of $3.08 billion in loans from a consortium led by state-owned China CITIC Bank, Tianqi Lithium agreed to sell nearly half of its interest in a joint venture that controls Greenbushes, the world's largest lithium mine, and a nearby processing facility in Western Australia state to IGO Ltd.

The deal announced last Friday would have further replenished Tianqi Lithium's capital via the issuance of 443.12 million new shares to Chengdu Tianqi Industry Group, an investment vehicles for Chairman Jiang Weiping and his daughter, Jiang Anqi, which is the mining group's largest shareholder. Chengdu Tianqi was to pay 35.94 yuan a share, a price nearly 40% below where the stock closed on Friday, or a total of 15.92 billion yuan ($2.45 billion).

However, the Shenzhen exchange voiced its objection in an open letter published on its website on Saturday. It questioned whether the sale could constitute "swing trading" that could hurt the interests of smaller investors since Chengdu Tianqi had sold off 88.61 million shares in the latter half of 2020.

That sale had cut Chengdu Tianqi stake in Tianqi Lithium to 30.05% from 36.04%, but the share placement would have taken its ownership up to 46.19%.

Tianqi Lithium’s board, led by Jiang Weiping, said a share purchase by its largest stakeholder "could possibly constitute a risk of de facto swing trading." (Courtesy of Tianqi Lithium)

The exchange also queried how Chengdu Tianqi would finance the share purchase and whether there might have been insider trading. The exchange noted that Tianqi Lithium share price had more than tripled over the previous 60 trading days. As a result, it instructed the company to investigate transactions by top management and major shareholders over the past month and their plans to sell any holdings within the next six months.

Following the exchange's blunt letter and counsel from financial advisers, Tianqi Lithium's board on Sunday reversed the decision to issue new shares, noting that the sale "could possibly constitute a risk of de facto swing trading."

The flip-flop was seconded by the company's three independent directors and board of supervisors, even though both boards had unanimously backed the original sale plan, with the two Jiangs abstaining. The independent directors had said in a statement after Friday's vote that the sale plan "satisfies the interests of the company and all the shareholders."

Tianqi Lithium shares fell as much as 7.8% in morning trading Monday before recovering to end the day up 1.9% at 60.89 yuan.

In the wake of the abandoned sale, the company said it would seek other financing support, adding that its operations remained normal and that the deal with IGO would go on.

Dennis Ip, analyst at Daiwa Capital Markets in Hong Kong, said he expects Tianqi Lithium to come back with another private placement "maybe six month later," noting that the key problem for the miner was the timing of the sale and agreeing with the exchange's concerns about swing trading.

Underscoring Tianqi Lithium's difficult position, the board separately on Friday said it would not exercise its right to purchase stock in a pending $1.1 billion capital raising in Chile by SQM. The decision stands to reduce the Chinese company's interest in SQM to 23.84% from 25.86% if it is approved at an extraordinary shareholders meeting on Jan. 22.

Tianqi Lithium said the decision was based on its board's "consideration of the company's recent financial situation and liquidity pressure."

"The dilution will not affect Tianqi's three seats" on SQM's board, Ip said, adding that the dilution of SQM's earnings per share from the share sale would be small and "highly manageable."

Also on Friday, Tianqi Lithium named Xia Juncheng as president and new board member, pending shareholder approval at an extraordinary meeting scheduled for Feb. 1. The company's previous president resigned last August.

According to a separate statement, Xia is not related to any member of the top management and does not own shares in the company.

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