OREANDA-NEWS. Fitch Ratings says today that China Shanshui Cement Group Limited's (Shanshui, B+/RWN) short-term liquidity remains adequate despite having paid USD378m to redeem almost all of its US dollar notes due 2016. However, the long-term direction of the company remains uncertain. This will depend on the outcome of the extraordinary general meeting (EGM) to be held on 29 July 2015, which will consider replacing the chairman and the majority of the board.

Shanshui announced on 7 July 2015 that it had paid USD378m to redeem 92.78% of its notes due in 2016. This redemption was caused by the action of China Tianrui Group Cement Company Ltd's (Tianrui) chairman Mr Li Liufa - and parties acting in concert - raising their stake in Shanshui to 28.16% in April 2015, which had triggered the "change-of-control" (CoC) clause under the notes.

Shanshui now has USD500m of notes due 2020 and USD29m of notes due 2016 outstanding in the offshore market. Despite the early redemption, its immediate liquidity requirements are likely to be met by a combination of onshore MTN and "super short-term" commercial paper programmes, and operating cash flows, which usually see a seasonal improvement in the third quarter of the year.

The EGM, requested by parties acting in concert with Mr Li, targets the removal of most of Shanshui's board, including the chairman. Should the chairman be replaced and/or the majority of the board members be removed, the CoC clause under the 2020 notes will be triggered, and the company may be required to make an offer to repurchase all outstanding 2020 notes. The company does not appear to have immediate liquidity to meet an early redemption of these notes within the limited timeframe.

It is unclear whether the EGM proposals can find enough support, as the proposals may lead to Shanshui's insolvency. More than 50% of Shanshui's shareholders' votes are required to change the chairman and most of the board. The current major shareholders are Mr Li and parties acting in concert (28.16%); China Shanshui Investment, an entity owned by the current chairman's father, Mr Zhang Caikui and other employees (25.09%); Taiwan's Asia Cement Corporation (ACC) (20.90%); and state-linked China National Building Materials (CNBM) (16.67%).

According to Shanshui's announcement on 8 July 2015, ACC and CNBM have stated that they may not support the proposals. However, part of China Shanshui Investment is now being administered by receivers, and the implications for the EGM vote remain unclear.