Shandong Chenming Paper Holdings
NEW COVERAGE: Chenming Paper Opts to Not Exercise Call Option Under RMB 1B 3+N Year MTN; Market Confidence Wanes as Co. Part of Shandong Debt Lending, Guarantee Circles; Core Paper Business Faces Headwinds; Financial Leasing Ops See Higher Bad Debt
Thu 07/02/2020 19:00 PM
Relevant documents:
Company statement on not to exercise call option
Q1’20 report
FY’19 report
Company response to query letter from Shenzhen stock exchange
Shandong Chenming Paper Holdings’ announcement in June of its intention not to exercise the call option under its RMB 1 billion ($141.5 million) 6.8% 3-plus-N year bond “17 Luchenming MTN 001” that is callable on July 12 may lead to credit rating downgrades, deepening its refinancing difficulty, said buyside sources.
Issuing new bonds in the near future will be all but impossible for the paper manufacturer in eastern China’s Shandong province, which is part of the debt lending and guarantee circles whose most notable member is Shandong Yuhuang Chemical. According to local media reports, Yuhuang is a client of Chenming’s financial leasing business to which Chenming has provided more than RMB 300 million financing. Yuhuang was filed for liquidation in March by a creditor at Shandong Heze Intermediate People’s Court.
Market confidence in Cheming’s trustworthiness has since waned, pointed out one buyside source and a market participant.
For the RMB 1 billion MTN, Chenming said it would move the interest rate to floating rates, calculated by the current benchmark rate plus initial spread of 3.31% plus 300 bps, effective July 12.
Chenming’s sole outstanding offshore bond, $163 million 9% bond due April 28, 2022, was indicated at 106 on Wednesday, July 1, yielding 5.47%, flat from a week ago.
Cheaper Paper, Higher Bad Debt
Chenming, listed on both the Shenzhen and Hong Kong stock exchanges, makes paper products and paper pulp. Its largest shareholder is Chenming Holdings, which is 45% owned by Shandong Jinxin Investment and Development. Jinxin, in turn, is backed by the State-Owned Assets Supervision and Administration authorities of Shouguang city in Shandong.
Machine-made paper products such as cardboard repro paper, tissue paper and newsprint contributed 85.3% of the company’s 2019 revenue. It owns three pulp mills in Guangdong, Hubei and Shandong provinces and sells its products to mainland China, Hong Kong, U.S., Japan and South Africa, according to its 2019 annual report. In 2019, Chenming produced 5 million tons of machine-made paper, up 9.6% over the 2018 level. It sold 5.3 million tons of paper, up 21.5% year-over-year.
During recent years, the papermaking industry in China faces headwinds including declining demand, tightening supply of raw materials and decreasing prices of products, Chenming said.
In addition to paper making, Chenming also engages in financial leasing, which generated RMB 1.8 billion, or 6%, of 2019 revenue. Asset quality, however, deteriorated, leading to allowance for bad debt of RMB 123.7 million for 2019.
Chenming has therefore downsized the financial leasing segment to control risk, the company said in response to a query letter from the Shenzhen stock exchange on April 16.
In 2019, Chenming collected RMB 5.9 billion of payments from its financing leasing business and reduced the size of the segment to RMB 13.6 billion. The company will use funds collected to repay existing debt, it said.
Financial Overview
In Q1’20, Chenming posted operating income of RMB 6.085 billion, down 1.2% over the same 2019 period. Its net income was 210.9 million for the first quarter, up 442% year-over-year.
As of March 31, the company’s cash and cash equivalents stood at RMB 1.781 billion, down 37.3% from the beginning of the year. Total liabilities reached RMB 70.506 billion on March 31.
For 2019, Chenming reported operating income of RMB 30.395 billion, up 5.26% over the 2018 level. It posted gross profit of RMB 2.048 billion, down 36.11% year-over-year. Its debt ratio decreased to 73.1% from 75.4% from the beginning of the year.
At the end of 2019, the company’s total liabilities were RMB 71.619 billion, up 7.8% over a year earlier. Cash and cash equivalents stood at RMB 2.89 billion, up 21.4% over the same period. It had RMB 52.699 billion current liabilities and RMB 18.92 billion non-current liabilities as of Dec. 31.
For 2019, the company’s financing costs were RMB 2.916 billion, up 6.4% year-over-year.
Chenming said it aims to reduce its debt-to-equity ratio to 65% or lower in two years. The company plans to dispose of non-core assets and introduce strategic investors through debt-to-equity swap and industrial investment funds, it added.
In 2019, Chenming saw RMB 12.233 billion net cash inflow from operating activities, RMB 2.026 billion net cash outflow from investing activities and RMB 9.487 net cash outflow from financing activities.
Chenming has nine outstanding onshore bonds with a total principal of roughly RMB 6.54 billion. The next maturity Sept. 28, when the RMB 2 billion 6.3% “17 Luchenming MTN 002” is due.
Below’s the capital structure of Chenming Paper:
Click HERE to enlarge the image
--Frances Yue
Company statement on not to exercise call option
Q1’20 report
FY’19 report
Company response to query letter from Shenzhen stock exchange
Shandong Chenming Paper Holdings’ announcement in June of its intention not to exercise the call option under its RMB 1 billion ($141.5 million) 6.8% 3-plus-N year bond “17 Luchenming MTN 001” that is callable on July 12 may lead to credit rating downgrades, deepening its refinancing difficulty, said buyside sources.
Issuing new bonds in the near future will be all but impossible for the paper manufacturer in eastern China’s Shandong province, which is part of the debt lending and guarantee circles whose most notable member is Shandong Yuhuang Chemical. According to local media reports, Yuhuang is a client of Chenming’s financial leasing business to which Chenming has provided more than RMB 300 million financing. Yuhuang was filed for liquidation in March by a creditor at Shandong Heze Intermediate People’s Court.
Market confidence in Cheming’s trustworthiness has since waned, pointed out one buyside source and a market participant.
For the RMB 1 billion MTN, Chenming said it would move the interest rate to floating rates, calculated by the current benchmark rate plus initial spread of 3.31% plus 300 bps, effective July 12.
Chenming’s sole outstanding offshore bond, $163 million 9% bond due April 28, 2022, was indicated at 106 on Wednesday, July 1, yielding 5.47%, flat from a week ago.
Cheaper Paper, Higher Bad Debt
Chenming, listed on both the Shenzhen and Hong Kong stock exchanges, makes paper products and paper pulp. Its largest shareholder is Chenming Holdings, which is 45% owned by Shandong Jinxin Investment and Development. Jinxin, in turn, is backed by the State-Owned Assets Supervision and Administration authorities of Shouguang city in Shandong.
Machine-made paper products such as cardboard repro paper, tissue paper and newsprint contributed 85.3% of the company’s 2019 revenue. It owns three pulp mills in Guangdong, Hubei and Shandong provinces and sells its products to mainland China, Hong Kong, U.S., Japan and South Africa, according to its 2019 annual report. In 2019, Chenming produced 5 million tons of machine-made paper, up 9.6% over the 2018 level. It sold 5.3 million tons of paper, up 21.5% year-over-year.
During recent years, the papermaking industry in China faces headwinds including declining demand, tightening supply of raw materials and decreasing prices of products, Chenming said.
In addition to paper making, Chenming also engages in financial leasing, which generated RMB 1.8 billion, or 6%, of 2019 revenue. Asset quality, however, deteriorated, leading to allowance for bad debt of RMB 123.7 million for 2019.
Chenming has therefore downsized the financial leasing segment to control risk, the company said in response to a query letter from the Shenzhen stock exchange on April 16.
In 2019, Chenming collected RMB 5.9 billion of payments from its financing leasing business and reduced the size of the segment to RMB 13.6 billion. The company will use funds collected to repay existing debt, it said.
Financial Overview
In Q1’20, Chenming posted operating income of RMB 6.085 billion, down 1.2% over the same 2019 period. Its net income was 210.9 million for the first quarter, up 442% year-over-year.
As of March 31, the company’s cash and cash equivalents stood at RMB 1.781 billion, down 37.3% from the beginning of the year. Total liabilities reached RMB 70.506 billion on March 31.
For 2019, Chenming reported operating income of RMB 30.395 billion, up 5.26% over the 2018 level. It posted gross profit of RMB 2.048 billion, down 36.11% year-over-year. Its debt ratio decreased to 73.1% from 75.4% from the beginning of the year.
At the end of 2019, the company’s total liabilities were RMB 71.619 billion, up 7.8% over a year earlier. Cash and cash equivalents stood at RMB 2.89 billion, up 21.4% over the same period. It had RMB 52.699 billion current liabilities and RMB 18.92 billion non-current liabilities as of Dec. 31.
For 2019, the company’s financing costs were RMB 2.916 billion, up 6.4% year-over-year.
Chenming said it aims to reduce its debt-to-equity ratio to 65% or lower in two years. The company plans to dispose of non-core assets and introduce strategic investors through debt-to-equity swap and industrial investment funds, it added.
In 2019, Chenming saw RMB 12.233 billion net cash inflow from operating activities, RMB 2.026 billion net cash outflow from investing activities and RMB 9.487 net cash outflow from financing activities.
Chenming has nine outstanding onshore bonds with a total principal of roughly RMB 6.54 billion. The next maturity Sept. 28, when the RMB 2 billion 6.3% “17 Luchenming MTN 002” is due.
Below’s the capital structure of Chenming Paper:
Click HERE to enlarge the image
--Frances Yue
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