Coal news and updates

Asia’s worst-performing bonds in the past year were issued by a Chinese coal miner facing a critical three months as cash holdings deplete.

 

Hidili Industry International Development Ltd. (1393)’s November 2015 securities lost 4.1 percent since March 31 and 18.6 percent in the past year, the most among Asian issuers in Bloomberg’s USD Emerging Market Corporate Bond Index. (BEMC) Similar distressed notes, defined as those yielding more than 10 percentage points above Treasuries, gained 15.4 percent in emerging markets in the past 12 months, Bank of America Merrill Lynch indexes show.

 

Hidili is among 12 of 50 listed Chinese coal miners with debt-to-equity ratios over 100 percent, and the Sichuan-based company will run out of cash by September without new funding, Bloomberg-compiled data show. Moody’s Investors Service sees no industry upturn in the coming year as falling coal prices hurt miners from Mongolia to Indonesia. Chinese Premier Li Keqiang plans to shut more than 2,000 smaller mines by the end of 2015.

 

STORY: Regis Philbin Is a Rare Bullish Voice on Rare-Earth Metals

“Liquidity has certainly been a focus in the market,” said Ashley Perrott, the head of pan-Asia fixed income in Singapore at UBS Global Asset Management, which managed $674 billion as of March 31 and doesn’t own the notes. “I wouldn’t say it’s an untouchable sector. Some are under more pressure, not just because of coal prices but some things on the corporate side.”

 

Seeking Loans

 

Hidili is seeking to roll over loans or get new facilities to ensure it doesn’t run out of cash, Cathy Huang, a member of the company’s investor-relations team, said by e-mail July 4. It’s also considering asset sales and, if it gets a bank loan, doesn’t expect to face many problems redeeming its $380 million of notes in November 2015. She also said the “majority of Sichuan mines and part of the Guizhou mines” would be affected by the government’s decree that old and obsolete plants be shut.

 

The 8.625 percent 2015 notes traded at 52 cents on the dollar on July 3 to yield 69.76 percent, according to prices compiled by Bloomberg. The securities, sold at par in October 2010, fell to an all-time low of 50 cents on May 9.

 

VIDEO: What the BOJ Has Done so far Is Working: Collett

Coal miners including Hidili are at high risk they won’t be able to refinance their debt and need to boost liquidity, either by asset sales, or equity and cash injections, to avoid default, Simon Wong, a Moody’s senior credit officer in Hong Kong said by phone July 2.

 

China’s benchmark coal price at Qinhuangdao averaged 515 yuan ($82.95) a metric ton on June 29 versus 605 yuan on Dec. 29 and 745 yuan about two years ago, according to the China Coal Transport & Distribution Association. In Australia, the Newcastle coking benchmark fell to $70.35 a ton in June, the least since October 2009.

 

Industry Shakeout

 

China, the biggest producer and importer of coal, passed its biggest changes in environment protection laws in 25 years in April. In May, it announced plans to phase out 117 million tons of coal capacity this year and close obsolete coking plants including those operated by Hidili in Panzhihua city.

 

STORY: China Screams for Imported American Ice Cream

“We don’t like bonds issued by coal companies and are trying avoiding such issuances,” said Diao Huiyu, the head of fixed-income investment in Shanghai at Franklin Templeton Sealand Fund Management Co., which has about 14.5 billion yuan of assets under management. “Coal prices are low and profitability is still under huge pressure.”

 

Cash Crunch

 

Hidili’s cash fell 80 percent to 322.2 million yuan on Dec. 31 from a year earlier and it will run out in 2.55 months if operations don’t improve or it doesn’t get new funding, according to Bloomberg-compiled data. Free cash flow has been negative every year since 2006.

 

Slumping coal prices have hurt other miners and bondholders this year. In Indonesia, PT Bumi Resources’ $700 million of 10.75 percent notes are down 18.5 percent. Mongolian Mining Corp.’s $600 million of similar-maturity 8.875 percent bonds tumbled 11.7 percent. All three are rated more than six levels below investment grade by Moody’s.

 

 

Source: http://www.businessweek.com/