We downgraded Shanshui 20s to Hold i mid August noting relativelybalanced risks rewards profile after the bonds recovered sharply o the back ofpotential general offer. Bonds are 5-6 points lower since then; partly asongoing control battle seems to drag o and partly o account of worse thanexpected 1H15 numbers as well as overall weaker markets i Aug/Sep. I thisnote, we closely look at the recent EGM outcome and present our thoughts onpotential scenarios & key company updates.
　　Latest EGM outcome and subsequent director appointments
　　Shanshui announced result of the latest EGM, we summarize below keyhighlights from the update and subsequent new director appointments.
　　China Shanshui Investment (CSI) was not allowed to vote based onobjectio raised by one of the key shareholders, ACC, i respect ofqualificatio of the perso purported to exercise votes.
　　No CoC trigger as the proposal to vote Mr. Zhang Bi was voted down.However, the proposal to remove Mr. Zhang Caikui was passed.
　　Among other proposals, Mr. Li Cheung Hung and Ms. Wu Xiaoyu werevoted to be removed from their positio as executive director andindependent non-executive director respectively.
　　Subsequently, company also announced to appoint three new directorsand re-designate a existing non-executive Director as executive Director.
　　The first outcome was key as it ensured continuatio of current Chairma andaverted CoC trigger. Removal of Mr. Zhang Caikui initially came as a surprisebut subsequent Bloomberg report suggests that he had expressed his desire tostep dow i order to protect larger interest of the company and allstakeholders.
　　All i all, removal of the founder is slightly negative but the move might be anegotiatio tactic to better manage CSI. Latest board changes do seem tosuggest that CNBM and ACC are setting the ground for control which is i linewith their earlier announcement to consider potential joint general offer. It isalso worth highlighting that Tianrui did not propose to remove ACC associateddirector o both its attempts to change the board and CNBM associateddirector during its second attempt.
　　What next?
　　Uncertainty may continue i the near future amidst the ongoing control battleand court cases. We are not trying to second guess the immediate next stepbut have tried to look at various scenarios (Figure 1 below) and potentialimpact o bond price with some simplistic assumptions. We have assumedequal probability for control by ACC/CNBM and Tianrui and slightly lowerprobability of current stalemate continuing for more tha 6-12 months. Heavyupcoming refinancing requirements (more details below) along with weakoperating performance are the key underlying reasons for our view that currentstalemate will not continue for long.