China’s top lithium producer struggles under debt load
Tianqi Lithium under pressure to repay bank loan as prices slump
China’s largest lithium producer is struggling to repay debt that helped finance an aggressive overseas expansion, the latest Chinese company to hit setbacks going global.
Tianqi Lithium is facing mounting pressure to repay part of a $3.5bn loan from state-owned Citic Bank this year, which it used to buy a 24 per cent stake in Chilean lithium producer SQM in May 2018.
The global lithium market has been hit by rising supply from new mines and a cut in subsidies to buyers of electric cars in China, the world’s largest market. Prices for lithium carbonate have fallen more than 30 per cent over the past year, leading to mounting losses for the industry.
Tianqi raised Rmb2.93bn ($424m) in a December rights issue on the Shenzhen stock exchange, less than half the Rmb7bn it had targeted to pay down the Citic loan. A total of $2.2bn is due to be repaid to the bank in November, according to the company.
“It was a bad decision done in kind of a bubble mentality,” Joe Lowry, a lithium consultant, said about Tianqi’s purchase of the SQM stake. “But I don’t think the government is going to let them go down given the criticality of [lithium] raw material supply. That would be like wiping out half of China’s supply, which would not be a good thing for China.”
Tianqi joins a growing cohort of Chinese companies that made debt-fuelled overseas acquisitions only to falter under the strain of the repayments in the months and years to follow.
Aggressive Chinese acquirers such as Shandong Ruyi and Zhonghong Zhuoye have been forced to back out of deals or sell recently purchased assets to appease creditors.
By late last year Chinese companies had for the first time on record become net sellers of global assets, as groups such as HNA and Anbang Insurance were forced to offload global portfolios.
Founded in 2004 in the county-level city of Shehong in Sichuan by chairman Jiang Weiping after he bought a bankrupt local government lithium company, Tianqi has expanded rapidly to become one of the world’s largest producers supplying battery companies such as LG Chem.
A total of 40 per cent of the new shares issued in the rights issue last month were bought by the founder’s wife Zhang Jing and Mr Jiang’s son-in-law.
In addition to its stake in SQM, Tianqi owns 51 per cent of Australia’s largest lithium mine, Greenbushes, and last year completed a $400m lithium hydroxide processing plant outside Perth.
“Regarding the acquisition debt, the board is paying great attention to this,” Tianqi Lithium said in a statement. “The company is currently discussing the feasibility of various financing options, and actively expanding various financing channels, to ensure repayment of the loan.”
Rating agency Moody’s last month cut its rating on Tianqi to B1 From Ba3, saying its move reflected the “uncertainty related to Tianqi Lithium’s refinancing plans, weak liquidity position and weak operations”.
Prices for Tianqi Lithium’s $300 bond due in 2022 fell 13 per cent this week to trade at 66 cents on the dollar.
However, Tianqi struck an upbeat note about the lithium market in its Chinese new year message to staff, saying that “in the chill after the hype has subsided, the seeds of rational recovery have already broken through and sprouted”.