China Fishery Accepting Anchovies for Cash Faces Bond Hurdle

By David Yong and Christine Jenkins

China Fishery Group Ltd. (CFG), the anchovy seller accepting fish in lieu of cash from a supplier, faces a second deadline today as it seeks bondholder approval to let its unit in Peru guarantee as much as $1.2 billion of debt.
The Singapore-listed group is pushing for Corporacion Pesquera Inca SAC, its Lima-based unit known as Copeinca, to back obligations including $650 million of credit lines from five lenders, $300 million of its July 2019 bonds and future borrowings, company filings show. That would require a majority of holders of Copeinca’s $250 million notes due February 2017 agreeing to relax the bonds’ covenants, according to a July 17 consent solicitation document.
“It’s very negative for bondholders to consent to this
because Copeinca is now going to represent basically the vast majority of China Fishery’s earnings and it has the least amount of debt,” Mariela Anguiano, an analyst at BCP Securities LLC in Greenwich, Connecticut said by phone Aug. 20. “If you make a simple calculation, it doesn’t make sense from a bondholder perspective.”
Standard & Poor’s cut China Fishery and Copeinca’s ratings by one level to B, or five steps below investment grade, last week and put both on negative watch because of the risk the debt can’t be refinanced. Moody’s Investors Service said last month it will review its B2 rating if the consent process fails.

Anchovy Quota

China Fishery set an original consent deadline of July 30 and since extended it until 5 p.m. New York time today.
Geoffrey Walsh, a Hong Kong-based spokesman for China Fishery, declined to comment in an e-mail Aug. 19. Damian Watkin, a director in London at consent tabulation agent D.F. King & Co., also declined to comment.
China Fishery spent more than $782 million taking over Copeinca last year, giving it control of the biggest anchovy quota-holder in Peru and the world’s third-largest fishmeal producer. The purchase was partly funded by loans which lenders say must now be guaranteed by Copeinca, according to S&P.
Based on its some $2.5 billion of assets at the end of March, Copeinca accounted for at least 90 percent of the group’s total assets and earnings, company filings show.
“That’s a lot of additional debt for Copeinca bondholders to share with other group creditors,” said Charles Macgregor, the Singapore-based head of Asia at Lucror Analytics Pte, an independent credit-research company. “This is a credit that continues to surprise on the downside.”

Paid in Fish

Copeinca bondholders are being offered $10 for every $1,000 in face value of bonds held, or 1 cent on the dollar, as an incentive to consent to the covenant changes. If the minimum number, or 50.1 percent, of bondholders agree, that will cost the company $1.25 million.
“The odds for the Copeinca deal going through isn’t high,” Alan Kao, an analyst on the credit-trading desk in Hong Kong at Haitong International Securities Co., said by phone Aug. 20. China Fishery may “have to sweeten the deal a little by raising the consent fee or eventually redeem the bond.”
Kao recommends China Fishery bonds because cash flow may improve given the company is getting $242 million in refunds from suppliers. The El Nino weather impact on fish catches is also receding, he said.
China Fishery said in a March 24 statement it had decided not to renew a long-term supply agreement and terminate three others. Under the deal, about $80 million was returned to the company at the end of April and another $162 million will be returned by March 2016, “either in kind as fish or, if mutually agreed, in cash.”

Bond Yields

The yield on China Fishery’s 9.75 percent 2019 notes has risen 7 basis points this week to 10.576 percent as of yesterday, Bloomberg-compiled prices show. The yield on Copeinca’s 9 percent notes is up 14 basis points to 10.890 percent. The securities have returned 7.2 percent and 2.3 percent respectively this year.
China Fishery signed a four-year credit facility for $650 million in March with China CITIC Bank International Ltd., Rabobank International, DBS Bank Ltd., Standard Chartered Plc and HSBC Holdings Plc, according to the March 24 statement.
Proceeds were to be used to redeem Copeinca’s 2017 notes, acquire the rest of the shares in Copeinca it didn’t already own, repay some debt and for general corporate purposes. The bond buyback plan was scrapped in May, according to a May 23 notice to bondholders obtained by Bloomberg News.
“The worst-case scenario, if they can’t get the consent from Copeinca bondholders, is a technical default on the loans and the banks will probably give them a temporary waiver,” Annisa Lee, a credit analyst in Hong Kong at Nomura Holdings Inc., said by phone on Aug. 20. “The other alternative is for them to call the Copeinca bonds.”