In China, if you owe your creditors a few hundred million dollars, you had better pay them back or face the wrath of the Deputy Prime Minister Liu He.
But if you owe them $ 1.9 billion and you control strategic natural resource assets, well, it’s a little more complicated.
When a Chinese coal company and an automotive group recently defaulted on four bonds totaling 4 billion rmb ($ 612 million), tremors Across the country’s $ 15 billion bond market, a powerful regulator led by Mr. Liu has threatened “zero tolerance” for any business caught trying to evade debt repayment.
On the other hand, Tianqi Lithium, one of the world’s largest producers of the element used in electric batteries, had to face a deadline of late November to repay its creditors led by China Citic Bank nearly 1.9 billion euros. dollars. He borrowed money two years ago to fund his $ 4 billion purchase a 23 percent stake in Chilean rival Sociedad Química y Minera.
China Citic Bank has granted Tianqi Lithium, based in southwest Sichuan province, a one-month reprieve as it tries to settle a new repayment schedule by December 28.
Tianqi Lithium is a private sector company listed on the Shenzhen Stock Exchange. The fact that he was able to borrow so much money from state-owned banks to purchase SQM’s stake, completed in May 2018, says a lot about the unique role he has carved out for himself as a champion. national operating in a strategic industrial sector.
At the time, Mr. Liu was supervising a repress on a frenzy of overseas purchases by large private groups such as Anbang, Fosun, HNA and Wanda. Many of their acquisitions in the entertainment, insurance and tourism sectors, such as Anbang’s purchase of the Waldorf Astoria hotel in New York, were viewed by Chinese regulators as overrated trophies.
Tianqi Lithium’s desire to acquire a stake in SQM, however, goes hand in hand with a fundamental interest of the Chinese state – establishing leadership, if not monopoly, positions in the production of commodities like lithium. What petroleum and copper were to the transportation and communications revolutions of the mid-20th century, lithium is to their early 21st-century counterparts, as it’s used in the batteries that power everything from iPhones to Apple to Tesla electric cars.
In addition to billions of dollars in credit from China Citic and other state-owned banks, Tianqi Lithium could also count on Beijing’s open and vocal support in SQM’s continued stake. When the deal was criticized by Chilean opponents who felt it would give China too much influence over the global lithium industry, the Beijing man in Santiago floundered in the fray. Any move to block the deal, Ambassador Xu Bin Told the local media of the time were said to have a “negative” effect on Sino-Chilean relations.
The sale has been completed, although Tianqi Lithium now wishes it had not. It was closed as lithium carbonate prices peaked at $ 17,000 per tonne. They have since plunged about 70% thanks to a glut of global supply, putting the Chinese company in a precarious financial situation.
Tianqi Lithium and its creditors face a difficult challenge in trying to avoid triggering a formal default at the end of the month: how to balance the Chinese state’s interest in getting its money back with its interest in securing the supply of lithium worldwide.
Tianqi Lithium could, for example, raise funds by selling its 51% stake in its Greenbushes mine – a huge open-pit lithium mine located in southwest Australia. Greenbushes is 49 percent owned by Albemarle Corp of the United States.
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But, given Washington’s determination to challenge Beijing’s grip on strategic commodities like lithium, President Xi Jinping would probably not be happy to cede control of Greenbushes to an American rival.
Selling a stake in Greenbushes to an Australian miner would be more acceptable, but also a bit humiliating for China given the 14 point memo its embassy in Canberra was released last month, accusing Australia of the rapid deterioration in bilateral ties this year.
For Beijing, the ideal outcome would be to find a way to keep Tianqi Lithium afloat with its assets intact up to global lithium prices. recover. On Monday, Reuters reported a deal that could accomplish exactly what was nearing completion, with Australian miner IGO is preparing to take a minority position in a vehicle holding Tianqi Lithium’s stake in Greenbushes for $ 1.5 billion.
This should allow Tianqi Lithium to retain control of Greenbushes while helping China Citic Bank get its money back. If so, China might consider thanking Australia for this favor.