Billion-dollar project losses dragging ST Salt Lake toward bankruptcy reorganization?

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Billion-dollar project losses dragging ST Salt Lake toward bankruptcy reorganization? Author/Source: Huahua Net Coal Chemicals Date: 2019-08-26 Clicks: 37 *ST Yanhu Lake recently announced that it had received a \"Reorganization Application Notice\" from its creditor, Golmud Taishan Industrial Co., Ltd. (referred to as \"Taishan Industrial\"). Taishan Industry applied to the Xining Intermediate People’s Court for corporate reorganization on the grounds that the company was unable to repay its overdue debts and clearly lacked the capacity to do so. There is still significant uncertainty as to whether the application will be accepted by the court and whether the company will enter reorganization proceedings. *Li Shun, the board secretary of ST Salt Lake, told a reporter from China Securities Journal exclusively that the company is still awaiting a decision from the court regarding the application filed by creditors for corporate bankruptcy reorganization. If the reorganization process can proceed, a reorganization plan will be prepared by the administrator. Li Shun also said that the company is under great pressure regarding its chemical projects, mainly due to rising prices of raw materials for these projects and the fact that production capacity has not met the required standards; as a result, these chemical projects are currently experiencing continuous losses. The price of potash fertilizers has shown a positive trend this year, and the company will improve the financial performance of the listed firm by increasing potash fertilizer production in the second half of the year. Inability to repay a debt of 4.39 million yuan: The announcement states that the catalyst for the application for bankruptcy reorganization was a debt of 4.39 million yuan owed by *ST Yanhu to Tai Shan Industry. Despite multiple reminders up to the deadline for payment, *ST Yanhu still failed to make the payment. On August 1, 2019, the applicant received a reply from the company, in which the company confirmed that the amounts owed were accurate, but due to certain operational difficulties and a shortage of funds, it was unable to pay the aforementioned overdue debts. To date, the company has still not repaid the aforementioned debts to the applicant, which has led the creditors to apply to the court for the bankruptcy liquidation of *ST Yanhu. Two major projects drag down performance: Despite the excellent results in the potassium fertilizer and lithium carbonate businesses, these cannot offset the negative impact on performance caused by the company’s chemical projects and its integrated magnesium metal production project. Upon closer examination of the resource characteristics of the Qarhan Salt Lake, it is reasonable to develop chemical industry projects as well as integrated magnesium metal projects. The Chaharhan Salt Lake is a salt lake with a high magnesium-to-lithium ratio. Data shows that it contains 4 billion tons of magnesium chloride and 12.04 million tons of lithium chloride in its reserves, with a magnesium-to-lithium ratio of over 300; thus, the extraction of lithium generates a large amount of magnesium resources as a byproduct. The integrated magnesium project is on long-term shutdown. The integrated magnesium project of Qinghai Salt Lake Magnesium Industry Co., Ltd. includes facilities for producing 100,000 tons per year of metallic magnesium, 1 million tons per year of methanol and olefins via MTO process, 500,000 tons per year of PVC (250,000 tons produced by the ethylene method and 250,000 tons by the calcium carbide method), 2.4 million tons per year of coke, 400,000 tons per year of calcium carbide, 1 million tons per year of soda ash, as well as associated cogeneration facilities and a 100,000-ton per year facility for the harmless treatment of calcium chloride. The project began to be designed in 2010, with an initial estimated total investment of 20 billion yuan. On April 14, 2017, the MTO combined unit and its associated facilities were put into operation successfully, producing qualified products. Since then, apart from brief periods of operation, the project has remained shut down for maintenance until today. The initial estimated investment for the integrated magnesium metal project was around 20 billion yuan. Yanhu Co., Ltd. replied to the inquiries from the Shenzhen Stock Exchange, stating that over an eight-year period, after three revisions to the budget, its investment in the integrated magnesium metal project has reached 38.645 billion yuan. It exceeds 93.2% compared to the initial design. The reporter learned that of the 38.645 billion yuan invested by Yanhu Co., Ltd., only 30% came from its own funds, amounting to about 8.9 billion yuan; the remaining portion was financed through bank loans. This directly led to an increase in financial expenses. On August 13, 2019, in response to inquiries from investors on the Shenzhen Stock Exchange’s Interactive Easy platform, *ST Yanhu stated that the company’s debt-to-equity conversion and debt restructuring efforts were still in progress. According to sources, due to the large scale of the project and the difficulties involved in its operation, financial institutions have remained cautious, and no substantial progress has been made regarding the conversion of debt into equity.