China Lithium Giant Gets Breathing Room as Loan Extended for Now

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Tianqi Lithium Corp. got some relief from lenders, who granted a last-minute extension on a major loan payment that was due Sunday.

The Chinese lithium producer and the syndicate of banks signed a letter of extension to defer the $1.88 billion loan repayment to either Dec. 28 or when an amended loan agreement takes effect, whichever happens first, according to a statement to the Shenzhen Stock Exchange on Monday. Tianqi had previously said its operations and production could be impacted amid its financial crunch.

While that provides some breathing room, and comes after a string of defaults in the Chinese credit market signaled stress in the state sector and soured investor sentiment for weaker commodities firms, risks remain. The company is still negotiating with lenders, led by China CITIC Bank Corp., on key terms for the amendment.

A failure to sign an agreement means no further extension will be given and the loan may be defaulted, which risks triggering cross defaults. If the conditions of the letter of extension aren’t fulfilled, the repayment deadline also won’t be extended, it said. China CITIC didn’t immediately respond to a request for comment.

Tianqi is already behind on 471 million yuan ($72 million) in interest payments this year and said Monday that it is required to pay any missed interest by Dec. 10. The company said separately it transferred funds to make a coupon payment due last week for its $300 million 3.75% bond.

Tianqi’s struggles stem from its highly leveraged acquisition of a $4.1 billion stake at Sociedad Quimica y Minera de Chile SA in 2018, which left the company wrestling with the massive repayment just as a sharp decline in lithium prices hurt earnings. It has been weighing different options to ease the liquidity crunch, including a potential asset sale and equity financing. Its also been pursuing strategic investors.

“The company can buy time from the loan extension, avoiding a messy restructuring and potentially selling down assets in Australia too, which makes sense now given geopolitical tensions,” said Alex Turnbull, managing partner at Singapore-based hedge fund Keshik Capital Pte. Tianqi has a majority stake in the Greenbushes lithium mine in Australia, as well as a processing plant.

Challenges Remain

Shares fell 5.4% on Tuesday as Tianqi still faces challenges around its cash flow and profitability. It has posted five straight quarterly losses and warning that uncertainties including the coronavirus might continue to drag on its business.

Tianqi is likely to reveal a solution for the repayment within a month, which potentially includes a strategic investor or Australian asset sale, according to Daiwa Capital Markets Hong Kong Ltd.

“From an investor perspective, strategic investment will remain the best solution, but perhaps not so for Tianqi’s controlling shareholder” Chengdu Tianqi Industry Group, according to Dennis Ip, head of energy research, and analyst Leo Ho. Chengdu Tianqi may find Australian asset sales more attractive, though that path may see prerequisites including possible approval from the Chinese government and Albemarle Corp., its partner in Greenbushes, to proceed, they said.

©2020 Bloomberg L.P.

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