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China firms fleeing US listings leave bondholders in dark

JUL 3, 20155:50 PM

[HONG KONG] The record pace of Chinese companies leaving US exchanges is spurring concern among bondholders that transparency and corporate governance may worsen.

At least 25 Chinese companies listed in the US are considering going private or have done so this year amid speculation they plan to list in China for higher valuations. The group includes international bond issuers such as Internet security service provider Qihoo 360 Technology Co and data- center operator 21Vianet Group Inc. Baidu Inc, China's largest search engine operator which also has global notes, has said it is interested in returning to the local stock market.

The trend threatens to make it more difficult for investors to assess financial risks at Chinese companies that have been listed in the US and issued US$33.6 billion of international bonds. Companies ditching their US listings no longer have to file quarterly financial results, which debt investors rely on to gauge borrowers' ability to pay off obligations.

"The implication of the privatization wave for bondholders is once the company is delisted, there is likely to be less financial disclosure on operations, debt and mergers and acquisition activities," said Raymond Chia, the Singapore-based head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. The firm oversaw US$474 billion as of March 31.

"This means that if the company does any acquisitions or profit warning, they are not required to file in the stock exchange anymore."

Five US-listed companies including Alibaba Group Holdings Ltd and Xinyuan Real Estate Co have offshore bonds outstanding. About 17 have convertible notes. Among those, three have received privatization offers: SouFun Holdings Ltd, China's largest real-estate information website; real restate agency E-House China Holdings Ltd; and budget hotel chain Homeinns Hotel Group.

21Vianet is among the Chinese companies considering delisting that have issued bonds. The Beijing-based firm got a US$1.4 billion takeover bid in June from its chief executive officer. The company has two Dim Sum bonds: 2 billion yuan of 6.875 per cent offshore yuan notes due 2017 and 264.3 million yuan of bonds due 2016.

While 21Vianet would still have to disclose certain financial ratios to bondholders even if it left the US, investors would get less information on its financial health, Henry Ng, credit analyst at Citic Securities International Co, wrote in a June 11 report.

A phone operator at 21Vianet refused to connect to the investor relations department without a name. The company didn't immediately reply to an e-mail seeking comment.

"Currently in the documents of most bonds issued overseas by Chinese companies, there is no clause to protect bondholders from privatization risks except change of control for shareholder change and M&A protection," Mr Chia of Schroder said.

Delisting may cause firms to alter business direction as management often teams up with other partners or private equity houses for the buyouts, according to Schroder's Mr Chia.

"Management strategy may change after privatization, which may not be in the interest of bondholders," Mr Chia said.

Stock market performance is another concern. China's benchmark Shanghai Composite Index has tumbled 29 per cent in the past three weeks, paring its surge over the prior twelve months. Any continued declines could tarnish the appeal of China listings. The slide has also prompted Chinese regulators to consider suspending initial public offerings.

"For the companies that just delisted, they need time to relist if they are seeking that route," said Mr Chia. "So during the time period, we face all the risks. And worse still, by the time they get their gig sorted, the IPO market may not be there anymore for them."

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Record Singapore fuel oil trades congest port, snarl loadings

      

Buyers trying to load record fuel oil volumes traded last month in Singapore are congesting the port's oil terminals, while land tanks are nearly full and tens of millions of barrels of marine fuel are being held in ships, traders and shipbrokers said. 

PHOTO: REUTERS

JUL 3, 20152:53 PM

[SINGAPORE] Buyers trying to load record fuel oil volumes traded last month in Singapore are congesting the port's oil terminals, while land tanks are nearly full and tens of millions of barrels of marine fuel are being held in ships, traders and shipbrokers said.

Almost 6 million tonnes, or 39 million barrels, of fuel oil were traded in June in the world's largest market for shipping fuel during an end-of-day pricing process, pushing up rates for Aframax vessels to near seven-year highs as buyers tried to find tankers to load the cargoes.

Complaints of loading delays resulted in at least two companies being temporarily barred from oil pricing agency Platts' daily market-on-close (MOC) price assessment process, traders said.

Platts - which declined to comment - periodically bans companies from its pricing process for trading behaviour, financial concerns or non-fulfillment of contracts. "There are loads of delays in Singapore and many vessels are loaded with fuel oil, and I believe some of them have not found a home," a Singapore-based shipbroker said.

At least 28 tankers have been hired for short-term charter by various traders, including Glencore's shipping arm ST Shipping and Petrochina's trading arm Chinaoil, possibly to store the excess oil, shipbrokers said.

One broker estimated that another 10-18 tankers are loaded with fuel oil unable to find buyers. Some 8-12 cheaper clean tankers have also been chartered to load fuel oil instead, and with so many cargoes changing hands, the congestion and shipping tightness are expected to ease only later in July, traders said.

"Oil bought ... in June is yet to be fully disposed and now the buyers' vessels are looking to run late for loading," a Singapore-based fuel oil trader said.

The unprecedented trading in June was sparked in part by the Middle Eastern summer, which means more local demand for fuel oil to generate electricity for air conditioners, fewer exports of the product and higher prices in Asia.

Strong refining margins also spurred US and European refiners to ramp up output, pushing excess fuel oil to Asia and triggering a stock-build.

Singapore's fuel oil stocks surged to a record of over 27 million barrels in June, before easing to nearly 25 million barrels in the week to July 1, data from International Enterprise showed.

Fuel oil buyers in June were mainly commodity merchants Glencore and Mercuria as well as PetroChina, while the main sellers included Russia's Lukoil, Total and merchant Vitol, according to a report by Platts, a unit of McGraw Hill Financial.

REUTERS

    

Iron ore price fall a sign China's economic might waning

Iron ore prices dropped to the lowest in more than two months on Friday, sending shivers through the mining industry and heightening worries that Chinese economic activity is slowing just as ore piles up at its ports. 

PHOTO: REUTERS

JUL 3, 20154:28 PM

[SYDNEY] Iron ore prices dropped to the lowest in more than two months on Friday, sending shivers through the mining industry and heightening worries that Chinese economic activity is slowing just as ore piles up at its ports.

China uses more than a billion tonnes of iron ore a year to make steel - 14 times the consumption of the United States - but Beijing's efforts to shift the economy to consumer-led growth means steel consumption is peaking faster than expected.

"It's clear China can no longer consume all the iron ore that's out there, so something's got to give," said James Wilson, a sector analyst for Morgans Financial in Perth Shares in Australia's biggest mining houses, including Rio Tinto, BHP Billiton and Fortescue Metals Group led the Australian bourse lower after the price of the raw material fell by 5 per cent.

Iron ore delivered to China stood at US$55.80 a tonne, its weakest since late April, Reuters data showed. The most traded iron ore futures on the Dalian Commodity Exchange followed, slumping to the lowest since April 24 of 402.5 yuan a tonne.

Analysts interpreted the declines as further evidence that China was awash in too much iron ore - with more on its way.

Iron ore stocks at 42 Chinese ports rose 1.7 per cent to 81.97 million tonnes by Friday from a week before, data from industry consultancy Umetal showed.

Even as stockpiles grow, fresh cargoes of ore continue to arrive, mostly from Australia and Brazil.

Shipments from Australia's Port Hedland to Chinese ports rose 3 per cent to 32.61 million tonnes in June from a month earlier, the latest port data showed.

The June increase at the world's biggest iron ore terminal helped sweep iron ore exports for the fiscal year to June 30 to 21 per cent higher to a record 439.6 million tonnes. Of that, 373.24 million tonnes were destined for China, according to the Pilbara Ports Authority.

Steel consumption in China from January to May tumbled an alarming 8 per cent from a year before, according Zhao Chaoyue, an analyst with Merchant Futures in Guangzhou.

"China's real steel consumption will fall further over the rest of this year," he said.

Analysts do not expect Australian miners, or the world's top supplier, Vale of Brazil, to slow shipments to China given their low mining and freight costs, pressuring the price and spelling trouble for smaller producers struggling to stay afloat.

China also said on Friday it will allow Valemax 400,000-tonne cargo ships to dock at its ports for the first time since the mega-vessels were commissioned.

Australia's Department of Industry and Science is forecasting more ore and less demand will drive the price of iron ore down to an average $54 a tonne this year and $52 in 2016.

"This is the downside of the $50-$60 range where iron ore belongs in this stage of the cycle," said Morgan's Mr Wilson.

Any benefits to Chinese steel mills of lower iron ore prices have been offset by softer steel demand. Reinforcing bar futures have showed little change since hitting the lowest level on record Thursday.

"The industry's cycles have caught some unprepared and others looking for answers," Rio Tinto Chief Executive Sam Walsh told a London business group this week.

REUTERS