Indebted Tianqi Lithium’s Share Sale Plan Withers Under Regulatory Scrutiny

Tianqi Lithium Corp. terminated a $2.45 billion plan to issue new shares to its leading shareholder at a deep discount to pay down its heavy debt load, one day after the securities regulator raised questions over the shareholder’s recent sale of stock.

The Sunday decision came just two days after Tianqi Lithium told the Shenzhen Stock Exchange that it would raise the cash by issuing 443 million new shares to its controlling shareholder Chengdu Tianqi Industry Group Co. Ltd. and Tianqi Industry’s subsidiaries.

Those shares, which would represent 23% of the total post-deal, were priced at 35.94 yuan apiece, representing a 20% discount — the maximum allowable — from the average over the preceding 20 trading days.

The funds were to be used to pay down debt from Tianqi Lithium’s purchase of a nearly one-quarter stake of Chilean lithium producer Sociedad Quimica y Minera de Chile SA for $1.4 billion in 2018. The cost of the deal and a slump in lithium prices since their 2018 peak saw Tianqi’s debt-to-asset ratio hit 81.27% in September, almost twice as high as the average among its Chinese peers.

The company dodged a debt crunch at the last minute late last year when its creditors allowed it to push back its repayment deadline on $1.88 billion in loans. In late December, Tianqi Industry extended a $117 million loan to Tianqi Lithium.

The abrupt cancellation came after the Shenzhen bourse made an inquiry about Tianqi Industry’s recent sell-off of Tianqi Lithium stock and future sales plans. The shareholder sold 88.61 million shares of the listed company between July and December 2020 at the range of 19.86 yuan ($3.06) and 39.41 yuan apiece, representing roughly 6% of total shares. That saw Tianqi Industry earn 2 billion yuan and its stake shrink to 30.05%.

Tianqi Industry was set to sell another 4% of Tianqi Lithium’s shares after Jan. 29 this year, according to a Jan. 7 notice to the bourse.

Thanks to booming sales in the new-energy vehicle market — for which lithium batteries are a key component —Tianqi Lithium’s share price hit historic high of 60.89 yuan on Monday, three times higher than the price in October. Sales were up 10.9% last year in China.

The Shenzhen exchange had asked Tianqi Lithium to explain whether its shareholder’s repeated purchases and sales of its stock could hurt the interest of retail investors. Such large-scale trades of a company’s stock can have a significant impact on its share price.

In the Sunday statement, Tianqi Lithium cited the risk of “substantial short-term trading” as a reason for its plan’s cancellation. A market insider told Caixin that it’s not surprising that the intensive sales made by Tianqi Industry caught the attention of the regulator, and that getting approval for the deal could prove tricky as its goal is to pay down debt rather than boost its business.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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