Lion Group completes debt, corporate revamp

BY YAP LENG KUEN and B.K. SIDHU

The Lion Group has completed its debt and corporate restructuring exercise and has asked the KLSE for the resumption of trading in the shares of four of its publicly-listed units. 

In an interview with StarBiz yesterday, group chairman and chief executive officer Tan Sri William Cheng said the group was also confident that the KLSE would lift the PN4 status on three of those listed companies once their results for the third quarter ending March, which would show a return to profitability, were released. 

The four companies currently suspended are Lion Corp Bhd, Lion Industries Corp Bhd (formerly known as Lion Land), Amsteel Corp Bhd, and Silverstone Corp Bhd (formerly known as Angkasa Marketing Bhd). The three under PN4 are Silverstone, Lion Corp and Amsteel. 

Cheng also said he was confident that the group would return to the black soon, given that most of the companies within its ambit have turned profitable, some even exceeding their profit forecasts. 

The effects of the restructuring would be more evident when the group announces its full-year results for the financial year ended June 30, 2003. 

“It's (the restructuring) completed but we have not put through the adjustments in the March accounts yet. Once that is done, we will be able to extricate ourselves from the PN4 status,'' Lion Group executive director Heah Sieu Lay, who was also present at the interview, said. 

“For most of the operations, we will meet the targets for financial year ending June 30, 2003, as business has picked up, especially the steel business. 

“The pulp and paper business is just a bit over target and by June we would be fairly comfortable,'' he said, but declined to give any figures. 

But Heah cautioned that the next three years, beginning this year, remained crucial for the group, as it would determine how successful the restructuring plan had been. 

The plan is to go for a local rating for its bond issue in two years, as it would have made two substantial payments by then. 

The Lion Group, which is expected to report RM14bil in turnover for the financial year ended June 30, 2003, needs about RM5bil to RM6bil for working capital this year. 

“Our main aim (in the debt restructuring) was to reduce the term loans. Our proceeds from the asset divestment and cash flow from the three key operating companies (Sabah Forest Industries, Megasteel and Silverstone) would be able to service the term loans over the next four to five years,'' Cheng said, adding that the working capital of RM5bil to RM6bil would be serviced by its operations (cash flow). 

Heah added: “The one good thing from this restructuring is certainty in terms of cash flow. We have been able to fix interest rates going forward up to 10 years, which may vary between 4.5% and 6.5%.'' 

The Lion Group is among the largest corporate debtors, owing some RM10bil.  

The group embarked on a corporate and debt restructuring exercise four-and-a-half years ago and, after several revisions and tough negotiations with 109 creditors, has just completed the exercise. 

The completion of the Lion Group's restructuring represents one of the last major corporate exercises of companies that got into financial difficulty due to the 1997 Asian financial crisis. 

Other major restructuring exercises completed with the help of the Corporate Debt Restructuring Committee (CDRC) included that of United Engineers (M) Bhd/Renong Bhd group, Johor Corp, Titan Group, PUTRA, Sistem Transit Aliran Ringan Sdn Bhd, Linkedua, Prolink and United Merchant Group Bhd. 

The Lion Group is one of the few that undertook the restructuring outside the purview of the CDRC although it had initial input from the committee. The others were Land & General, Intrakota and Metroplex Bhd. 

From a diversified group, the new Lion Group would have four core activities moving ahead: steel products, property development and retail, automotive and tyres, and pulp and paper and timber products. 

Now the theme is to focus on core businesses that have good potential and to bring down costs to maximise returns. 

“The hardest task (debt and corporate restructuring) has been addressed. Now it is about improving the operations, and enhancing productivity levels and yields, and it is my duty to make sure (we improve),” Cheng said. 

But what drove the Lion Group into trouble? 

In the 1990s, the Lion Group was flying high. It was a diversified group that over-expanded, and it was not spared the onslaught of the 1997–98 financial crisis. 

“We diversified too fast. And sometimes, when you do that, you have not enough manpower to carry out the task (on top) of tackling foreign exchange losses. Half our debts were US dollar loans,'' Cheng said. 

Which is why he said the emphasis now was training employees and choosing the right man for the job. In 1999, it embarked on an in-house debt restructuring exercise for several companies within the group. Chocolate Products was one company that had its RM400mil debts restructured. But it was only in July 2001 that it announced a complex scheme surrounding Lion Industries, Amsteel, Silverstone and Lion Corp. The plan was to tap the future cash flow of these four companies. 

Several revisions had been made to the original plan due to many reasons. The loans were a 50:50 mix from local and foreign institutions, with half the loans in US dollars. 

“After many meetings, we managed to secure full support from the banks and trade creditors, as well as non-financial creditors, for the plan. The CDRC came in 2000 to help and acted as a mitigator with our creditors,” Heah said. 

Over the months, the company managed to resolve its RM2.5bil inter-company loans, restructure and reschedule about RM6bil of debts due to lenders, and reschedule its US$857mil US dollar bonds. 

It has thus far paid RM2bil of debts, but with interest payments accumulating, the group still owes RM10bil. 

But Heah said that in three years, “the group would have a comfortable level of borrowings and would be able to sustain the debts.” 

The plan is to restructure RM6bil worth of debts of the four companies. Part of the plan is also to divest assets valued at about RM4.2bil over a five-year period, beginning 2002. 

Thus far, the group has sold assets worth close to RM2bil. It sold its interest in Amsteel Securities for RM42mil, its 30% share in Malaysia British Assurance to Allianz for RM129mil, and Century Hotel for RM114mil. It also divested Asia Commercial Finance, its chocolate making operations, and various plots of land and plantations. 

It is also in various stages of finalising the sale of more assets, mostly property. Cheng would see his stake in the Lion Group rising from 40% to 48% after the exercise.