Tianqi lithium: 10 billion debt is about to mature and projects under construction are not as expected

 Tianqi lithium: 10 billion debt is about to mature and projects under construction are not as expected

Skyrocketing acquisitions have hurt performance, and there is still a risk of loss this year

Founded in 2004, Tianqi lithium is one of the worlds top five lithium suppliers. Its main business includes research and development, production and sales of lithium minerals, lithium chemical products, lithium carbonate and other lithium series products.

The companys current predicament is mainly due to a sky high acquisition in 2018. At that time, Tianqi lithium signed an agreement with nutrien, a Canadian fertilizer company, to take 23.77% of the equity of Chiles lithium mining giant sqm with us $4.066 billion (about RMB 25.92 billion), becoming the second largest shareholder of sqm. Together with the original 2.1% equity, Tianqi lithium currently holds 5.86% of sqm25. At that time, its net assets were about 12 billion yuan.

In order to complete the above transaction, Tianqi lithium signed an agreement with the syndicate led by China CITIC Bank, adding US $3.5 billion in M & A loans, including US $2.5 billion in domestic loans and US $1 billion in overseas loans. However, in the context of the downturn in the lithium industry market, the huge acquisition did not bring the expected benefits to Tianqi lithium industry, but affected its own performance and brought heavy financial pressure.

Tianqi lithium industry in the latest announcement prompted the risk of continuous loss and delisting risk warning. It said that the companys net profit in 2019 and the first half of 2020 was negative due to factors such as the decline of sales volume and price of main products, the substantial increase of financial expenses and the provision for impairment of pre merger and acquisition assets. At the same time, the company is optimistic about the development of the new energy vehicle industry for a long time. However, the global economy has been severely damaged due to the spread of the epidemic. In a short period of time, it will have an impact on the downstream industries such as new energy vehicles and consumer electronic products. In addition, the cyclical adjustment of the industry has greatly affected the companys daily production and operation, project construction and financing progress. The superposition of various uncertain factors may lead to the companys current year It is possible for Shenzhen Stock Exchange to give warning of delisting risk if the annual operating performance continues to suffer losses.

However, there is a risk that it can not repay the principal and interest of a large amount of due debts. Tianqi lithium admitted in the announcement that according to the relevant agreements signed by the company and the syndicate, US $1.884 billion (about RMB 12.808 billion) in the merger and acquisition loan will mature at the end of November this year. Although the company has formally submitted an application to the syndicate to adjust the term structure of the loan, it is still under examination and approval, and the loan matures and cannot be extended successfully, and the company cannot timely and fully The possibility of default caused by the payment of the sum of money. In addition, the company will suspend the payment of interest on some M & A loans in 2020. Up to now, the total amount of interest payable on the outstanding syndicated M & A loans is about RMB 464 million.

Tianqi lithium mentioned that the main debt financing tool of the company and its wholly-owned subsidiaries is bank loans, and provides corresponding mortgage and pledge guarantee for most bank loans; In view of the fact that the equity and assets of the companys main holding subsidiaries and the equity of the important participating companies have been pledged to the M & a loan syndicate, the companys new bank loan financing ability is limited, and the companys solvency largely depends on the companys operating performance and the ability of customers to make timely payments to the company.

As of September 28, Tianqi group had 261.24 million pledged shares due in the next six months, accounting for 53.52% of its shares and 17.69% of the total share capital of the company, and the corresponding balance of financing and guarantee was 1.982 billion yuan; the cumulative number of pledged shares due in the future one year was 349 million shares, accounting for 71.50% of its shares and 23.63% of the total share capital of the company, corresponding to financing and guarantee The balance was 3.254 billion yuan. According to the company, if the above two risks are triggered, the share price of the company may fall, and the mortgagee of Tianqi group may ask for repayment of the pledge financing or covering the position.

The pressure on capital also transmitted to other businesses of Tianqi lithium. Tianqi lithium said that in order to reduce non production expenses, the company suspended or slowed down all construction projects and lowered the annual cost budget. One of the most affected is the first phase lithium hydroxide project in quina, Australia.

According to the public information, the 24000 tons of lithium hydroxide project constructed by Tianqi lithium industry in Australia has been in commissioning state since the start of phased commissioning at the end of 2018 to the end of last year. As for the reasons for the delay of the project schedule, the company once explained that the commissioning could not be completed according to the expected schedule due to multiple factors such as insufficient design demonstration during the project feasibility study period, optimization and adjustment of equipment and process after construction. Combined with the companys financial capital situation, the project is in the state of deferred commissioning. The company and Tlk will actively promote relevant financing activities, strive to pay the arrears due to suppliers as soon as possible, and promote the commissioning progress of the project.

Will speed up the introduction of strategic investors

Faced with various risks, Tianqi lithium said that in order to completely resolve the companys risks, the company, its controlling shareholder Tianqi group and its actual controller, Jiang Weiping, have been committed to strategic restructuring by introducing powerful and synergistic strategic investors. Under the guidance of the party committees and governments of Sichuan Province, Suining City and Shehong City, the company has worked closely with the creditors Bank and other stakeholders, and is currently stepping up negotiations with potential strategic investors. However, as of the disclosure date of this announcement, no legally binding agreement or contract has been signed.

It also said that it would continue to focus on the coordination of production, supply and marketing systems at home and abroad in order to obtain stable operating cash flow, allocate funds preferentially for the purchase of main raw materials and pay the necessary expenses for production and operation, take effective measures to stabilize core talents to ensure the normal operation of production, strengthen the management of receivables, and negotiate with customers to pay in advance or on time To supplement cash flow. At the same time, the company is trying to adjust the product structure and customer structure, increase the proportion of foreign long-term single customers with relatively higher added value, and launch comprehensive cost reduction and efficiency improvement measures, and strive to increase the gross profit rate of product sales.

Jiang Weiping, chairman of Tianqi lithium, said at an investor reception day activity recently that the core problem the company is facing is the debt problem. He is actively communicating with the cooperative banks to adjust the debt maturity structure, relax the loan conditions and reduce the loan interest rate to ease the liquidity of the company. The company has formally submitted the application for change of term structure adjustment to the syndicate, and is still in the process of further communication with all participating groups. At the same time, the company is considering the feasibility of various equity financing tools and paths, review procedures and time planning to evaluate and promote the companys financing plan, so as to perform the legal procedures for deliberation and decision-making and information disclosure when conditions are ripe.

In addition, Tianqi lithiums controlling shareholders and relevant financial institutions are also helping to ease the short-term financial tension. According to the announcement, Tianqi group obtained funds through revolving loan and share reduction, provided financial assistance to Tianqi lithium industry and provided guarantee for its financing. Since the beginning of 2020, Tianqi group has provided loans of 358 million yuan to Tianqi lithium industry, and provided guarantee of 100 million US dollars (or equivalent RMB) for new financing. In addition, Tianqi lithium also applied for a new comprehensive credit line of no more than US $100 million (or equivalent RMB) from Chengdu Branch of China CITIC Bank Co., Ltd., and the funds were mainly used to settle the overdue payment for lithium concentrate, avoiding the risk of raw material supply and related disputes and litigation risks.