July 6, 2018 / 9:37 AM / 17 days ago

Huiyuan Juice fights loan squeeze

* Loans: Borrower seeks another waiver, reviving concerns over Chinese food sector

By Yan Jiang

HONG KONG, July 6 (TRLPC) - China Huiyuan Juice Group is seeking another waiver on a €180m (US$211m) syndicated loan after failing to fulfil the conditions under a previous one granted less than three months ago, adding to lenders’ concerns over China’s food industry.

The Hong Kong-listed company was unable to publish its 2017 annual results or resume trading in its shares by June 29, breaching the conditions of the first waiver it obtained on April 19.

A few days before the deadline Huiyuan sent a second waiver request to lenders asking for an extension to both requirements until the end of November.

Banks are likely to grant the second waiver after the borrower offered an increased guarantee at a meeting on Thursday, sources said.

However, the episode has added to worries about China’s food sector, which has been dogged by food safety scandals and controversies.

“We have been traditionally cautious on Chinese food companies due to safety issues,” said a banker in Hong Kong. “But in more recent years, food safety seems no longer the only issue. Companies are reporting various problems. Just look at Huishan Dairy. That is horrible.”

China Huishan Dairy Holdings faces liquidation and delisting from the Hong Kong stock exchange after its shares were suspended following a sudden collapse in March 2017.

China’s biggest integrated dairy producer owes billions of dollars to creditors, including Bank of China and HSBC.

Huiyuan Juice is still operating normally, although its position is precarious. Without a second waiver from its lenders, the company would have to pay back the debt immediately.

Failing to do so could also spark cross-default provisions on other debt, including a HK$1bn (US$127m) convertible bond due 2019 and a US$200m 6.5% senior bond due 2020. However, the company has managed to repay a €200m (US$235m) 1.55% three-year bond due July 7 and it is seeking a waiver from holders of the convertible bond.

The convertible bond gives holders the right to call an event of default and seek repayment at 120% of the principal if the stock is suspended for 10 days, but no action has yet been taken. The sole investor when the notes were issued in January was a company controlled by Hui Ching Lau, chairman of Qinqin Foodstuffs, another Hong Kong-listed food company.

RATING DOWNGRADES

Ratings agencies are taking a dim view of the company’s prospects.

On June 12, Moody’s downgraded the group, China’s largest privately owned juice producer, by three notches to Caa1 from B1, saying the need for the company to provide the Hong Kong stock exchange with a full explanation of why it had failed to disclose an intercompany loan would delay the resumption of share trading and increase its liquidity risk.

On June 19 Fitch slashed Huiyuan’s rating to CCC+ from B, following an earlier downgrade on April 4 from B+.

“Fitch expects deteriorating liquidity and reduced funding access. We also believe the company could incur difficulties in moving a large amount of onshore cash to offshore for loan-repayment purposes,” the agency said. “We see challenges over its operation and general working capital needs – again due to tight liquidity.”

Huiyuan’s shares have been suspended since March 29 when it disclosed that it had provided loans totalling Rmb4.28bn (US$681m) to Beijing Huiyuan Beverage, a company 65% owned by its largest shareholder and chairman Zhu Xinli, between August 2017 and March 2018.

Although the transaction was significant, Huiyuan did not disclose it and did not obtain approval from independent shareholders, therefore violating several Hong Kong listing rules.

Moreover, the two corporate entities did not sign any formal documentation until March 29, when they entered into an agreement to document, and simultaneously terminate, the prior loan transaction. By then, Beijing Huiyuan Beverage had paid back the principal and interest accrued in full.

Huiyuan Juice was not available for comment.

Reporting By Yan Jiang; Editing by Prakash Chakravarti and Vincent Baby

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