Time is not on the side of the Ng family, as disgruntled lender HSBC tries to push China Fishery Group into liquidation.

The Ngs, who control Hong Kong listed Pacific Andes International Holdings and its Singapore listed subsidiaries China Fishery and Pacific Andes Resources Development, face accelerated debt re-payments that ratings agency Standard and Poor&rsquo s (S& P) says they are unlikely to be able to cover.

Having already triggered an event of default (EoD) on the terms of its $300 million senior  unsecured notes  due in 2019 by missing a $31m interest payment, an agreement from 25% of the note holders could force accelerated repayment of the principals and interest imminently.

In addition to the $300m notes, the company also has a $650m loan [due March 2018] and revolving facility from HSBC, Rabobank, DBS Bank, China CITIC International, and Standard Chartered, provided in March 2014.

The bonds and loans are guaranteed by Copeinca, the prospects for which are being impacted by El Nino causing a cut in total allowable catch for the second season, to 1.1m metric tons.

China Fishery is declining to comment on the process.

&ldquo After an EoD happens, and if more than 25% of the bond holders agree, China Fishery will need to immediately repay all principal and accrued and nonpaid interest,  which we believe they don&rsquo t have the means to,&rdquo Lillian Chiou, an analyst with S& P, told Undercurrent News.

&ldquo We don&rsquo t think they have the financial capacity to meet this kind of re-payment immediately. It is getting into a very difficult situation for them, for sure,&rdquo she said.

&ldquo In theory&rdquo , this accelerated re-payment could happen at any time, said Chiou.

This, however, &ldquo could  be the last straw&rdquo , she said, the day after S& P downgraded China Fishery to &ldquo SD&rdquo , or selective default.

Meanwhile, China Fishery, which is the holding for the family&rsquo s fishing interests in Peru and Africa and its Russian pollock sourcing operations, will also trigger an EoD if the company can&rsquo t dismiss the court order appointing KPMG as provisional liquidators.

&ldquo There  could be  another EoD on the involuntary assignment of the liquidator,&rdquo said Chiou.

If China Fishery can&rsquo t dismiss this within 60 days of the [KPMG] appointment on Nov. 25, this triggers immediate accelerate of repayment on principal and interests, with no need for 25% of votes from notes holders, she told Undercurrent.

&ldquo How can China Fishery avoid the accelerate of repayment? Seek majority of the notes holders to agree and waive the acceleration of repayment,&rdquo she said. &ldquo If China Fishery does not file an objection, another way they can get out of it is, they can get the majority of bondholders to consent and provide a waiver, so they don&rsquo t need to immediately repay.&rdquo

Another scenario is, if the company accepts the assignment of the liquidator and agrees with the court&rsquo s decision, it will also trigger an EoD and they will need to repay of all outstanding principal and interest immediately, she said.

Provisional liquidator limits options 

The appointment of three KPMG executives as provisional liquidators, one of which, Edward Middleton, was involved in the liquidation of Lehman Brothers in Hong Kong, means China Fishery has less room for maneuver on trying to generate liquidity.

&ldquo If the company wants to do any asset sales, they would need to get approvals from the provisional liquidators,&rdquo said Chiou.

&ldquo They have been in talks with banks about extending the lending facilities and there must be some discussions with banks about what liquidity they can find,&rdquo she said.

&ldquo We know they have  very low  cash  balance. The other way to get cash is to sell assets. They still have the China Fishery fleet, which is  underutilized  at the moment. The Namibia operation is  still loss-making,&rdquo said Chiou. &ldquo So, they must be looking at how they can cash out. Now, however, with the [appointment of the] provisional liquidator, they will not be able to do things as freely as before.&rdquo

According to its latest accounts, China Fishery has $41.3m in cash as of June 28, compared to $170.5m six months prior.

Why now for HSBC?

The decision of HSBC to push for a wind up of China Fishery has raised some eyebrows, despite the tough situation for the highly leveraged company.

&ldquo It is very rare for Asian high yield lenders to do this kind of extreme action. Imagine you are HSBC you know the company is in distress, but the assets are still worth a lot,&rdquo said Chiou.

&ldquo If the company sells its assets slowly and quietly, you might get the best out of this.&rdquo By filing this court order pushing for a winding up, you are pushing the company to distress, she said.

This could cut the buying price by half, at least, said Chiou. &ldquo I think there must be some very unhappy discussions, something must have happened with them and HSBC.&rdquo

Despite its considerable debt issues, China Fishery still has a valuable asset in its Peruvian fishmeal and fish oil operations, despite the lower quota set for this year.

China Fishery paid around $782m for Copeinca. " Then they still have  their  own fishing quota licenses in Peru, so  their Peruvian operation  could easily worth over $1 billion,&rdquo she said.

The outstanding debt for the $650m club  loan is $420m and the bond is $300m. &ldquo So, there is only $720m.  They still have some inventory and working capital loans, but not material,&rdquo she said. &ldquo There is a net asset value there, so they could have a very good recovery prospect, if they want to liquidate the company quietly.&rdquo

The move from HSBC, however, changes the game.

&ldquo Now, if I am a buyer, I am going to offer a very low price. I know that the company has a court order pushing for it to be liquidated, so I am going to offer a very low price and you have to accept it,&rdquo she said. &ldquo Think about how many can buy fishing licenses in the world there are only limited buyers who can do it.&rdquo

Copeinca a drag on margin

Since buying Copeinca, China Fishery has struggled to bring its performance up in line with its own operations, however.

&ldquo When they bought Copeinca, we compared the profitability in Peru. The China Fishery ebitda [earnings before interest, taxes, depreciation and amortization] margins where the highest in the market,&rdquo said Chiou.

They  seem to  have  more  modern equipment  that allows better operating efficiency,  and also are closest to the Chinese market for the fishmeal sales, she said.

&ldquo This means they can keep the margin  while  others lose going through middlemen. If  their peers  was  selling  at $1,800 per metric ton, they  seem to be able to  sell at $1,900-$1,950/t,&rdquo said Chiou. &ldquo Recently, when we tracked their performance in Peru, their margin came down. Maybe the lower operating efficiency from Copeinca is dragging it down.&rdquo

The company is also a lot more aggressive than other fishery companies in Peru, she said.

The inventory level at $220m at the end of June, a &ldquo historic high&rdquo .

All the other companies in the market had sold inventory, in preparation for disruption from El Nino.

&ldquo They knew the season would not be good, so they want to get cash in, to cover operating costs. China Fishery was not doing that, as they were speculating on the market price going up  with a low TAC [total allowable catch] for season B. By the time they reported the Q3 results  ended in June, they had only contracted 60-70%, whereas other peers had contracted 100%,&rdquo she said.

As reported by Undercurrent, prices have not increased as some expected, with the market waiting to see if the price would drop before placing orders.

This is part of the cause of the &ldquo record low&rdquo cash level at the end of Q3, at $41.7m. &ldquo This shows you how aggressive this company is at managing their cash,  working capital,  and potentially  speculating on the market price as well,&rdquo she said.