Fishery bankruptcy move leaves bondholders adrift

SINGAPORE — Bondholders are suffering as a Singapore-listed fishmeal supplier’s bankruptcy filing flags doubts that it will extract enough value from its Peruvian assets to repay creditors.

China Fishery Group filed for protection under Chapter 11 of the US bankruptcy code on June 30, stoking a 10.4 cents drop in its 2019 notes — the worst month since November.

The firm told investors on July 21 that bids for its fishery business in Peru — its single most valuable asset — peg the business at about half the US$1.7 billion (S$2.3 billion) valuation it received last year, according to Mr Suresh Nair, a partner at law firm Advocatus LLP.

“The recovery prospects ultimately hinge on whether China Fishery is able to sell the Peruvian assets,” said Mr Yee Man Chin, primary analyst at Fitch Ratings in Hong Kong. “The company has gone into bankruptcy protection and they have not been able to provide any update on the sale of the assets, so there is a huge amount of uncertainty as to whether it will ultimately happen.”

Singapore’s bond market has also dealt blows to creditors of other companies. Some of the worst Asian failures including Celestial Nutrifoods left bondholders with as little as 5 to 17 per cent recovery, a grim reminder for investors in Singapore-listed firms with distressed debt.

China Fishery’s lenders said in a July 8 court filing that the firm’s Chapter 11 filing has derailed efforts to sell the Peru assets and maximise value for stakeholders.

China Fishery’s US$300 million of 2019 notes traded at 53.6 cents on the dollar on Tuesday, according to Bloomberg-compiled prices. The S$200 million 2017 notes, sold by its parent Pacific Andes Resources Development (PARD), fetched 20 cents to the dollar. Both companies defaulted on their notes in the first quarter.

Investors usually agree to restructure the bonds they hold in a company when it is still a going concern, according to Mr Neel Gopalakrishnan, an emerging-market credit analyst in Singapore at Credit Suisse Private Banking. “Even restructuring has significant implementation risk and is a long process, with substantial losses for investors in many cases.”

Investors have watched the value of their bonds erode since August, when the authorities in Singapore and Hong Kong started probing an undisclosed securities offence.

HSBC Holdings sought to wind up and liquidate the company in November, and behind-the-scene negotiations with banks set a July 15 deadline to sell the Peruvian assets. China Fishery pre-empted the sale by filing for Chapter 11 without informing its chief restructuring officer, its lenders complained in their July 8 US court filing.

PARD, which issued the Singapore held bonds, filed an application in the Singaporean Courts for protection while a scheme of arrangement is negotiated and finalised with creditors, including the bondholders.  This Singapore based process is a protective measure, which allows PARD to finalise an optimal scheme of arrangement without the threat of a forced liquidation by any one of the bank creditors, acting unilaterally and in self-interest, and destroying value for the bondholders.  

“The possibility of a sale of all or part of the Peruvian fishmeal business remains, but the process is now not limited to a single short-term strategy” dictated by lenders, Mr Geoffrey Walsh, a Hong Kong-based spokesman for Pacific Andes Resources, said by email on July 23. “There is now the opportunity to consider a range of strategies to derive the highest possible value from the assets.”

Fitch, which has cut its grade on China Fishery five times since April 2015, has given it a recovery rating of RR4, which historically denotes a 31-50 per cent recovery in principal and related interest. If Fitch is right, China Fishery’s bond price suggests investors are still too optimistic on the outcome.

The current bond price “reflects the latest uncertainty in creditor claims following the bankruptcy filing, which was not meant to hurt bondholders or its ability to pursue asset sales”, said Mr Terence Lin, assistant director of bonds and portfolio management at the Singapore-based fund researcher iFast Corp. “There’s not too much optimism now.” BLOOMBERG