Chinese CAT-Equivalent, Sany, Finds Itself In Liquidity Crunch, Seeks Covenant Waiver

Tyler Durden's picture




 

Over two weeks ago we first described what at that point was merely the hint of trouble at Australian mega-miner Fortescue which is slowly but surely losing the fight with insolvency courtesy of plunging iron ore prices, whereby it was once again proven that bonds always have a better grasp of the situation than equities. Sure enough the cash crunch which we predicted was imminent at Fortescue, has since hit the company over the past several days, as the firm is currently in dire liquidity straits, desperate to renegotiate covenants and get waivers that allow it to continue operations even as creditors get the short stick (in exchange for some serious money upfront). It is unknown whether it will succeed, although judging by its halt from trading until next week by which point it hopes to restructure its debt, things are certainly not rosy for the megalevered iron-ore company. In retrospect, FMG AU is lucky to be alive as is, having had a comparable near-death experience back in 2007/2008: should its bondholders end up owning the equity, so be it. However, another far more troubling and certainly underpriced covenant renegotiation has struck, this time impacting Chinese conglomerate Sany Heavy Industry, a company which is the Chinese equivalent of US Caterpillar and Japanese Komatsu, which is owned by Liang Wengen who is mainland China's richest man with a $10 billion net worth, and which is so big and diversified that under no circumstances should it be forced to request covenant waivers, especially not under a soft-landing scenario for China. And yet this is precisely what it did.

From Reuters:

Sany Heavy Industry Co Ltd, a major heavy machinery maker controlled by one of China's richest men, is asking its lenders to waive a financial covenant on $510 million of loans, Basis Point reported, highlighting the growing risks facing the industry in an economic downturn.

Why is this mega-corporation, which has RMB 50 billion in income in a good year, has a $12 billion market cap, and 70,000 employees, suddenly in liquidity crisis?

Unpaid bills owed to companies in China's coal, steel and heavy machinery sectors jumped by a fifth in the six months to June as growth in the world's second-largest economy slowed, reducing manufacturing, and demand for a range of commodities.

 

Sany, which competes with Caterpillar Inc and Japan's Komatsu Ltd and which this year bought privately-owned German concrete pump maker Putzmeister for an estimated 360 million euros ($464.6 million), has $160 million in onshore loans and $350 million in offshore loans, according to Thomson Reuters data.

Which covenant is being breached:

The company, controlled by Liang Wengen - who is worth $8.1 billion, according to Forbes - is asking its lenders to waive the net debt to tangible net worth covenant - one of the terms of its loans - and to respond by the end of next week, Thomson Reuters publication Basis Point reported, citing sources. It did not name the lenders.

 

According to sources, the current requirement on net debt to tangible net assets is at less than 0.8 times, Basis Point reported.

And the punchline:

Its loans receivable - amounts creditors expect to be repaid at a specific date - more than doubled to almost 23 billion yuan ($3.63 billion) at end-June from six months earlier.

In other words the company which competes with Caterpillar (which already warned about some truly scary global trends) not only has a major debt problem, not only suddenly can not collect what is owed to it by various trade partners (which is the real red flag here), but also is suddenly facing collapsing profits: "The shares fell to more than 2-year lows late last month after Sany posted a 28 percent drop in second-quarter net profit - its biggest quarterly fall since 2008."

And that, ignoring the propaganda for a second, is what is really going on in the Chinese economy: a gradual and encroaching halt, in which vertical trade linkages are collapsing as there is simply not enough loan growth and liquidity (either localized or global) to keep the run-rate in place.

Hopefully the Fed and ECB can print enough "wealth" to somehow bail China out soon, because any hopes of the contrary are now forever dashed.

In other news: one gently used Cat 797F for sale, some minor dings. Great fuel efficiency.$5,000,000 OBO

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Fri, 09/14/2012 - 16:24 | 2796848 kaiserhoff
kaiserhoff's picture

What?  You mean no one pays rent in ghost cities?

No one could have seen this coming;)

Fri, 09/14/2012 - 16:35 | 2796910 DoChenRollingBearing
DoChenRollingBearing's picture

Yet more proof we can relax about China "taking over the world".  The USA will prosper or decline (latter) because of our OWN unwillingness to take on our problems.

And this POS co. in China?  Just stick with CAT.

Or better yet: GOLD!

Like I've been telling all at ZH since I joined...  ;)

Bari, Italy has a loy to say for itself, a very nice city.  It has been a real pleasure staying here, highly recommended.

Fri, 09/14/2012 - 16:48 | 2796955 NotApplicable
NotApplicable's picture

"Malinvestment, bitchez!" -- Mises

Fri, 09/14/2012 - 17:23 | 2797056 Gringo Viejo
Gringo Viejo's picture

I'd like a covenant waiver my own damn self.

Fri, 09/14/2012 - 21:46 | 2797821 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

China, the giant POS.

Sat, 09/15/2012 - 22:31 | 2799758 RockyRacoon
RockyRacoon's picture

Putzmeister

German company...  Somebody is kidding, right?

Those Krauts sure have a sense of humor!

Fri, 09/14/2012 - 16:58 | 2796975 vast-dom
vast-dom's picture

just wait till our Chinese friends dump all their US paper. TBT bitches!

Fri, 09/14/2012 - 17:07 | 2797009 LongSoupLine
LongSoupLine's picture

I don't care how big that CAT 979F looks, it's still not big enough to keep up with Bernank's printers.

Fri, 09/14/2012 - 18:48 | 2797338 Bunga Bunga
Bunga Bunga's picture

There is even no one to collect free money in ghost cities.

Fri, 09/14/2012 - 16:25 | 2796859 JailBank
JailBank's picture

CNBC did not report this.

Fri, 09/14/2012 - 16:28 | 2796871 ACP
ACP's picture

Surprise!

Fri, 09/14/2012 - 17:19 | 2796994 e-man
e-man's picture

...but CNBC did have Kim Kardashian on to give her perspective and analysis on the markets racket.

Fri, 09/14/2012 - 17:04 | 2796998 Dr. Engali
Dr. Engali's picture

Shit they only know one word...Apple

Fri, 09/14/2012 - 16:27 | 2796863 Yen Cross
Yen Cross's picture

 Tyler(s) have been, "UnEQUIVOCALLY" , Fair and cutting edge, on all of these topics!

   Shit Z/H readers! Tyler even gives " Aircraft Carrier( battle group), positions" all over the world!  If that isn't fair,I don't know what is?

Fri, 09/14/2012 - 16:31 | 2796867 JohnKozac
JohnKozac's picture

Soros reiterated last week, "China will have a hard landing."

This article supports what he said.Also, I read the streets of Shenzhen and Guanzhou are not safe a tnight due to the masses o funemployed peasnats wandering about at night "mugging" people who stay outside their fenced/gated community.

Looks like things are changing there......"Progress ?"

 

On the bright side, Liang Weng was awarded the "Putzmeister of the Year Award."

Fri, 09/14/2012 - 16:45 | 2796946 onebir
onebir's picture

Guanzhou has been like that in places for years. If Shenzhen has become disorderly too, that's not good.

Fri, 09/14/2012 - 17:10 | 2796995 You Didn't Buil...
You Didn't Build That's picture
Home Depot Suffers Epic Defeat In China

 

 

(Reuters) - Home Depot Inc, the world's largest home improvement chain, will close all seven of its big box stores and cut 850 jobs in China

Read more: http://www.businessinsider.com/home-depot-admits-defeat-in-china-2012-9#ixzz26TpuoTab Yeah, that Guanzhou train station area is seedy sort of like some of our bus stations. Shenzen on quiet streets... be careful. Too bad about Shenzen but I did not feel too safe on quiet streets there even back in 2008. High unemployment results in dire circumstances for many so some feel they have nothing to lose....it's a bad situation. They do not have all the "social safety nets" that we have---no SS, no unemployment insurance, EBT cards, free cell phones, etc. I hope the global economy improves but I am not optimistic.
Sat, 09/15/2012 - 13:10 | 2797039 e-man
e-man's picture

That's because no one wanted to buy all their crap that's Made in Ch...oh, wait.

Fri, 09/14/2012 - 23:36 | 2797990 Blizzard_Esq
Blizzard_Esq's picture

Obviously this was bound to happen. USA is DIY since labor is expensive and any CHINESE with any money say DIFM, "do it for me" since labor is relatively cheap there...

Fri, 09/14/2012 - 16:41 | 2796870 cougar_w
cougar_w's picture

Hell yeah, all my feline homiez are doing waivers 'n shit. We gangsta. Best not be mess'n.

Fri, 09/14/2012 - 16:46 | 2796943 Wakanda
Wakanda's picture

Word cougar - my Maine coon cat got yo back.  We be rollin' in dead rodents.

Fri, 09/14/2012 - 16:28 | 2796872 dick cheneys ghost
dick cheneys ghost's picture

Pass the Sweet and Sour Shrimp

Fri, 09/14/2012 - 16:36 | 2796915 Wakanda
Wakanda's picture

Sany may look like Cat but still taste like chicken.

Fri, 09/14/2012 - 16:49 | 2796960 NotApplicable
NotApplicable's picture

I LOLed.

Fri, 09/14/2012 - 17:34 | 2797103 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Sany may look like Cat but still taste like chicken.

Ah, ah, Sany of course being Chinese citizenism citizen cat equivalentationism is ruefully not of essence felinity much so prosperously. Compositioned it fowl birdings the pigeontarity and crowlike dangdang, for tastingness to the chicken verisimilitude. The preparedness mixing the crustiest bits being twice-cooked salamander to crispity, the hot and sour sauce immersion beholds a liquidity crunch deliciously.

Fri, 09/14/2012 - 16:29 | 2796880 q99x2
q99x2's picture

Oh boy what bargains. A bankster can now pick up Chinese corporations with infinite Bernanke bucks - penny on a dollah.

Fri, 09/14/2012 - 16:32 | 2796895 cougar_w
cougar_w's picture

We call that "a trap".

Sure the ChiComs will sell you something sucky sucky fi' dollah, and then not let you take anything out of the country, and then a year later send around the goon squad to re-nationalize your candy ass.

Fri, 09/14/2012 - 16:36 | 2796914 kaiserhoff
kaiserhoff's picture

You can always get your money INTO a commie country...

Fri, 09/14/2012 - 16:44 | 2796938 LULZBank
LULZBank's picture

You can never get your money OUT of a capitalist country...

Fri, 09/14/2012 - 16:51 | 2796965 NotApplicable
NotApplicable's picture

Which makes me glad that "countries" don't really exist, but rather, are merely abstract figures of the imagination. ;)

Fri, 09/14/2012 - 17:02 | 2796989 LULZBank
LULZBank's picture

You did'nt imagine that...

Fri, 09/14/2012 - 17:02 | 2796990 Yen Cross
Yen Cross's picture

 capitalist country? " I think you mean"Banana Republic"?   The U.S. of A taxes all earnings abroad!

Fri, 09/14/2012 - 16:35 | 2796890 aint no fortuna...
aint no fortunate son's picture

but wait, isn't that new stimulus program about building new roads to those ghost cities? Invisible cars driving on empty roads to ghost cities, does Ben have a part time consulting job I wonder?

 

 

 

 

 

Fri, 09/14/2012 - 18:27 | 2797276 Bunga Bunga
Bunga Bunga's picture

The economic effect of throwing money onto empty streets is zero.

Fri, 09/14/2012 - 21:11 | 2797719 aint no fortuna...
aint no fortunate son's picture

hasn't stopped him so far

Fri, 09/14/2012 - 21:12 | 2797724 aint no fortuna...
aint no fortunate son's picture

as is the economic affect of throwing money into insolvent wall street banks but that hasn't stopped him either

Fri, 09/14/2012 - 16:32 | 2796892 kaa1016
kaa1016's picture

I tell you, even though I made money trading this QE3 rally, I just have a feeling that one day in the not too distant future we're going to wake up to a nasty headline from somewhere about something and this market is going to tank. The only difference is that the belief that the Fed can save the day will have been shattered. Prices are disconnected from reality right now. Anyone long this market better own some puts.  

Fri, 09/14/2012 - 16:36 | 2796911 Yen Cross
Yen Cross's picture

You are soooo full of shit! How many times did you sell the " Bernanke PUT"?  

Fri, 09/14/2012 - 16:39 | 2796925 cougar_w
cougar_w's picture

this market is going to tank.

Okay couple things here:

1) It's not actually a market so stop calling it that. 2) The worst that would happen is the remaining humans working the Exchanges will run for the hills, extracting all of 1% of the "market" activity they currently represent. 3) The algos will tough it out because like honey badger, they just don't care, and keep trading pennies on 2 nano second hold times to churn the fucker up 2% on the day and fuck you if you missed the "rally".

That's just how it is. Ben Bernanke can read as much into as he wants to, but it don't mean shit.

Fri, 09/14/2012 - 16:45 | 2796944 LULZBank
LULZBank's picture

Very eloquent and insightful analysis.

Have you considered writing for WSJ?

Fri, 09/14/2012 - 17:29 | 2797078 cougar_w
cougar_w's picture

You know, I think they would catch me writing "...but it don't mean shit' and revoke my journalistic license.

But thank you for the kind encouragement.

Fri, 09/14/2012 - 17:05 | 2797003 kaiserhoff
kaiserhoff's picture

The cat's on a roll.

Fri, 09/14/2012 - 16:43 | 2796937 onebir
onebir's picture

'which is so big and diversified that under no circumstances should it be forced to request covenant waivers'

Erm, it's a construction equipment manufacturer*: sales are first derivative of construction activity. Wouldn't you expect it to run into trouble in a construction slowdown?

What's interesting is this is happening right after a stimulus announcement. Maybe Zoomlion will be next...

*& apparently less diversified than it's major competitor:

http://www.businessweek.com/news/2012-08-30/zoomlion-boosts-profit-on-concrete-pumps-sany-earnings-fall

Fri, 09/14/2012 - 16:49 | 2796958 LULZBank
LULZBank's picture

Whats lacking with the stimulus announcement is a concrete plan to create jobs and revive the economy.

They can start cleaning the Himalayas with toothbrushes. Imagine all the economic activity and jobs it will create.

Fri, 09/14/2012 - 16:45 | 2796942 buzzsaw99
buzzsaw99's picture

Typical. The CEO is reportedly worth $10B but he won't even bail out his own company. Just like in the usa. Greedy bastard.

Fri, 09/14/2012 - 16:46 | 2796948 LULZBank
LULZBank's picture

Why bailout when the future is not bright or even orange.

Fri, 09/14/2012 - 16:50 | 2796963 buzzsaw99
buzzsaw99's picture

Just stiff bondholders, shareholders, employees, taxpayers, and run off with the loot. It's the american way!

Fri, 09/14/2012 - 17:05 | 2797000 LULZBank
LULZBank's picture

You mean "US Citizenism" at work.

Fri, 09/14/2012 - 16:48 | 2796952 Seer
Seer's picture

Talk about tell-tale signs!  That's a big yellow, dead looking canary in that there coal mine!

Fri, 09/14/2012 - 16:52 | 2796967 NotApplicable
NotApplicable's picture

No, no, 'e's uh,...he's resting.

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