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On November 14, Tianqi Lithium took the “storm” initiative, and $ 1.884 billion of debt may be at risk of default. The debt was used primarily for the company’s acquisition of part of the equity capital of Chilean lithium mining giant SQM in 2018. However, since the merger, SQM’s share price has fallen from approximately US $ 60. / share to the lowest value of approximately US $ 25 / share in 2020, which has brought further impairment pressure and liquidity pressure to Tianqi Lithium. After the market opened on November 16, Tianqi Lithium’s share price plunged 7.69%.
At the same time, Tianqi Lithium also disclosed other risks, including significant litigation, arbitration matters and related performance risks, the risk of project construction or achieving below-expectations production, and the controlling shareholder holding the commitment rate. company stock is too high.
Tianqi Lithium thunders actively, with 1.884 billion debts at risk of default
On November 14, Tianqi Lithium published the “Significant Risk Matters Progress Announcement.” The announcement showed that Chengdu Branch of China CITIC Bank Co., Ltd. (hereinafter “China CITIC Bank”) added comprehensive credit lines to the company on June 30, 2020. More than US $ 100 million (or its equivalent in RMB), with a term of 1 year. The company obtained this new loan of 599 million yuan on June 30, 2020, which served to pay Talison Lithium Pty Ltd the purchase price of the lithium concentrate.
As of November 14, Tianqi Lithium has used its own funds and the company’s controlling shareholder, Chengdu Tianqi Industry (Group) Co., Ltd. (hereinafter “Tianqi Group”) to repay the new loan and the corresponding assets. And the capital commitment has not yet been published, and the company is in close communication with China CITIC Bank about the procedures for the cancellation of the related commitment.
Tianqi Lithium further stated that so far, the company’s cash flow level has not substantially improved and the liquidity shortage situation has not yet substantially improved. According to the relevant agreement signed between the company and the M&A Loan Syndicate (hereinafter referred to as “the Syndicate”) led by China CITIC Bank, the $ 1,884 million of the M&A loan will expire at the end of November 2020, representing 179.35 of the company’s most recent audited net assets. %. Although the company has formally submitted a request to adjust the loan term structure to the union, it is currently under review. There is a possibility that the loan cannot be successfully extended when the loan expires and the business is unable to repay in full and on time, resulting in default.
The above loans are mainly invested in Tianqi Lithium’s overseas M&A projects. In 2018, due to the purchase of 23.77% of the capital of Chilean lithium mining giant SQM, Tianqi Lithium signed an agreement with a merger loan syndicate led by China CITIC Bank to add new merger and acquisition loans. 3.5 billion US dollars.
SQM is the world’s leading integrated producer and marketer of specialty plant fertilizers and potassium, lithium, iodine and industrial chemical fertilizers. Tianqi Lithium originally wanted to expand its influence in the global market through leveraged mergers and acquisitions. However, after the merger, SQM’s share price began to fall. In 2018, SQM’s share price was still around US $ 60 / share, and by 2020, SQM will drop to a low of US $ 25 / share.
Source: Oriental Fortune Network
Affected by the sharp drop in SQM’s share price, in 2019, Tianqi Lithium conducted an impairment test on long-term equity investments and reserved a corresponding provision for asset impairment of RMB 5.353 billion.
The aforementioned mergers and acquisitions have also created enormous financial pressure for Tianqi Lithium. In the 2019 annual report, Tianqi Lithium said that the acquisition of some of SQM’s shares has greatly increased the company’s debt-to-assets ratio, and the large number of M&A loans has led to a sharp increase in loans. financial expenses. Affected by multiple factors, such as falling prices of major products, declining performance, high asset-liability ratio, substantial increase in financial expenses, and new corona pneumonia epidemic, the company is currently under increased liquidity pressure.
In the “Announcement on the Progress of Significant Risk Events”, Tianqi Lithium also stated that the company suspended payment of part of the interest on M&A loans due in 2020 (as of now, the accumulated amount of unpaid interest on syndicated M&A loans is about 471 million yuan, which represents the company 6.76% of the most recently audited net assets). If the company finds it difficult to pay off debt principal and interest in the future, the business, operating performance, equity status, financial status, and the company’s daily production and operation may be adversely affected.
After the market opened on November 16, Tianqi Lithium’s share price plummeted. At the close of trading, Tianqi Lithium’s share price was 22.69 yuan per share, a decrease of -7.69%.
Facing hidden currents of risk: litigation risks, lower-than-expected production, and too high a commitment rate from controlling shareholders
In addition to debt repayment risks, Tianqi Lithium’s “Major Event Progress Announcement” also revealed other risks.First, the announcement revealedMajor Litigation, Arbitration, and Related Performance Risks.
As of the date of disclosure of this announcement, Tianqi Lithium’s wholly owned subsidiary, Chengdu Tianqi Lithium Co., Ltd. (hereinafter “Chengdu Tianqi”), Tianqi Lithium Kwinana Pty Ltd (hereinafter “TLK” ) and Australia Quinana Hydroxide There are no updates on the litigation and arbitration between MSP Engineering Pte Ltd (“MSP”), the general contractor for the lithium project. The case is still on trial and no final judgment has been issued. TLK has included the amount of the subject matter of MSP’s lawsuit against TLK in its accounts payable.
Tianqi Lithium said the aforementioned litigation and arbitration results will not have a significant adverse impact on Tianqi Lithium’s operating performance, but may affect the company’s operating cash flow and the progress of the TLK project start-up. Tianqi Lithium will pay close attention and attach great importance to the above-mentioned cases, actively respond to litigation, strictly follow the provisions and requirements of relevant laws and regulations, and comply with information disclosure obligations in a timely manner based on progress.
At the same time, Tianqi Lithium also disclosed the risk that the project’s construction or production will not meet expectations.From September 30, 2020 to the date of release of this announcement, Tianqi Lithium’s ongoing construction projects have not undergone significant and substantial changes. Regarding the first phase of the Kunana lithium hydroxide project, Tianqi Lithium is combining the results of the preliminary start-up work. The joint working group consisting of Tianqi Lithium headquarters and the Australian team will continue to maintain standardization and full communication, focusing on as soon as possible The main objective is to achieve a full commissioning and to carry out related work in a normal and orderly manner .
Tianqi Lithium Industry said that although the company has been working hard to advance its work, if the company’s various financing avenues are unsuccessful and the company cannot resolve the subsequent construction capital investment through other financing channels , or the results of the MSP litigation will adversely affect one. Using the commissioning funds for the lithium hydroxide project in the future, the company’s initial investment in the project may face the risk of loss or impairment in the future. Other projects that the company has started before (including, but not limited to, “Tianqi Lithium Suining Anju District 20,000 Tons Lithium Carbonate Annual Production Project”, “24,000 Tons Hydroxide Monohydrate Phase 2 Annual Production Project battery grade lithium “) In the future, you may also face the risk that the initial investment may not be fully recovered due to the temporary inability to continue investing.
Finally, Tianqi Lithium also disclosed the risk that the controlling shareholder maintains the company’s share commitment rate is too high.
As of November 10, 2020, Tianqi Lithium’s controlling shareholder, Tianqi Group, has accumulated 354 million pledged shares due next year, representing 75.82% of its shares and 24.03% of total capital. of Tianqi. The corresponding balance of financing and guarantee is 3,194 million yuan. The financing and guarantee balance includes two parts: 1) Tianqi Group’s pledge financing balance of 2.235 million yuan, which was loaned to Tianqi Lithium and its subsidiaries for 609 million yuan; (2) the financing pledge guarantees of Tianqi Lithium and its subsidiaries The amount is about 959 million yuan and the actual loan balance of Tianqi Lithium and its subsidiaries is 300 million yuan. If the company’s performance continues to decline, unpaid large debts and other similar risks are triggered, it can cause the company’s stock price to fall; at that time, the pledged creditor of Tianqi Group can request the repayment of the financing of the pledge or cover positions.
In addition, Tianqi Lithium has not updated the “risk of cross default” and the “risk of continued loss of performance and foreclosure risk warning” mentioned in the “Risk Warning Announcement” released on September 30, 2020. If the Liquidity crisis cannot be adequately resolved, the company may face further litigation, arbitration, freezing of bank accounts, freezing of assets, etc. due to past due debts, and you may also be required to pay liquidation-related damages, late fees, and interest penalties, which will affect the company’s output. The operation and business development increased the financial expenses of the company, while further increasing the financial pressure of the company and negatively affected the performance of the company during the year. If the company’s operating performance in 2020 cannot be significantly improved and can turn losses into profits, after the company releases the audited “2020 Annual Report”, there is a possibility that the Shenzhen Stock Exchange will implement a warning of risk of delisting.
