THE broadside warning of heavy losses by the local industry arising from dumped steel by foreign players appears to have cast doubt over the ability of some firms to secure financing given the worry over their ability to repay existing debts.
“I would be nervous if I hold any bonds in those troubled steel companies. Is the company able to not only service the bonds but also redeem the debt?” asked one investor.
“For bondholders it is about cashflow.”
Mounting losses have been apparent among the country’s largest steel companies. For Megasteel Sdn Bhd, which is majority owned by Lion Corp Bhd, the accumulated losses over the past 8 years is estimated at RM1.4bil, according to Lion Group chairman Tan Sri William Cheng. He says Megasteel has debts amounting to RM600mil. It is believed that some of the lenders of Megasteel include RHB Bank, Maybank and AMMB Holdings.
Megasteel’s financial performance has also been a drag on Lion Corp, which is now classified as a PN17 company under Bursa Malaysia after its auditors cast doubt over the company and its subsidiaries to continue as a going concern.
For Cheng, who has ploughed money into his steel operations from selling profitable companies such as tyre-maker Silverstone Bhd, the current situation is a disappointment to him.
His troubles, though, are shared by other large steel millers. Companies such as Perwaja Holdings Bhd and Kinsteel Bhd have large debts and to compound matters, are in the red when it comes to operating profit over recent years.
As of the end of its 2013 financial year, Perwaja had short-term debt of RM276.43mil and long-term debt of RM1.36bil. Kinsteel had short-term debts of RM1.83bil and long-term debt of RM109.25mil at the end of last year.
However, many of the other smaller companies appear in better financial health compared with the larger companies although their profitability in recent times have seen some compression.
For Lion Corp, its troubles have been well documented since falling into PN17 classification.
In April, it reached a settlement with Tenaga Nasional Bhd over RM305.63mil electricity bill owed by Megasteel.
Part of the settlement meant that Megasteel had to pay in advance for the supply of electricity starting last month and had to provide a corporate guarantee to the sum of RM30mil for Megasteel to continue to get power.
Losses at Megasteel had seen Cheng raise the issue of financial stability, lamenting that the will be no resolution to the plight of the industry if there is no protection from dumping actitivites.
Megasteel is seeking a 30% tariff hike over the next six years to mend its financial position and it has been the lack of which that has scuttled efforts to find a strategic partner for Megasteel since 2011.
The International Trade and Industry ministry said it will not give struggling steel makers additional protection as it is committed to honouring the country’s international trade obligations to ensure freer and fairer trade.Related story:
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