Bangkok--24 Aug--Sahaviriya Steel Industries
SSI launches “Comprehensive Financial Plan” with the support of its banks, terminates the Standstill Agreement and converts short term working capital loan into amortizing term loan, and capital increase up to US$ 413 million to strengthen capital structure. D/E ratio to reduce from 3.1 to 1.6, to ride through steel cycle trough and expand the business to new markets. Signed an MOU with Vanomet, a world leading independent steel trading company, who will invest up to US$ 170 million. Remaining amount will be offered via Rights Offering (RO) and Private Placement (PP) at 0.68 baht per share. Steel and raw materials price is stabilitizing in Q3 after a drop in Q2, while HRC Spread is returning to normal.
Mr. Win Viriyaprapaikit, Group CEO and President of Sahaviriya Steel Industries Public Company Limited (SSI), reveals that on 8 August 2012, SSI entered into the “Memorandum of Understanding for Vanomet Strategic Investment” among SSI UK, Vanomet Holding AG (“Vanomet”) and its Senior Lenders to preliminarily agree on terms and conditions for a strategic investment into SSI UK. In addition, on 14 August 2012, the Company signed the “Memorandum of Understanding for Financial Backing” with 3 financial institutions (Short-Term Lenders) and its Senior Lenders to preliminarily agree to convert their working capital loan into a 3-year amortizing term loan. These two MOUs constitute the core part of the Comprehensive Financial Plan.
Mr. Win states that, according to the Comprehensive Financial Plan, the transaction will enable SSI and its subsidiaries to maintain short-term and long-term financial stability. The plan includes the recapitalization of the business and amendment of the existing financing terms. The main features are:
1) Capital increase for an amount up to US$ 413 million by new shares issuance, to be allotted via Private Placements and Rights Offerings in 4 tranches at 0.68 baht per share.
i. Private Placement #1 of up to 8,000 million shares to Vanomet Holding AG.
ii. Private Placement #2 of up to 5,300 million shares to strategic and other investors.
iii. Private Placement #3 of up to 4,300 million shares to Sahaviriya Inter Steel Holding.
iv. Rights Offering of up to 1,834 million shares to the existing shareholders.
2) Vanomet, a reputable international steel trading firm with annual turnover of US$ 4 billion, agrees upon the total investment of US$ 170 million, consisting of US$ 100 million short-term loan and US$ 70 million revolving working capital facilities, for SSI UK, whereby Vanomet will convert the whole amount of this US$ 100 mm short term loan into SSI’s new equity and at its discretion to convert part or all of US$ 70 million revolving working capital loan into SSI’s new equity.
3) The Company and its lenders agree to terminate the Standstill Agreement and convert their short-term working capital loan into 3-year amortizing term loan.
4) Reduction of debt by buying back THB 2,097 million convertible debentures, repaying principal and interest on subordinated bridging loan for the amount not exceeding US$ 33 million.
5) The Company agrees to convert US$ 125 million of slab advance payment paid to SSI UK into new equity of SSI UK.
Mr. Win says that the Company will propose to seek necessary approvals from an extraordinary shareholders’ meeting in October.
”We are very pleased to announce this Plan and very much relieved by the termination of the Standstill Agreement. The Standstill Agreement had caused us huge reputational damage as it was misunderstood to be a debt moratarium on the Company’s part. It was not. We had been current in all our debt service and the purpose of the agreement was to allow the Company and our banks the time to agree on the way forward. We have now reached a consensus. This recapitalization and loan amendment will give us the capital structure to ride through this current steel cycle trough and to be in the position to capture any business opportunity that may arise thereafter. Our D/E ratio will reduce from 3.1 to 1.6, and our financial cost will also significantly reduce. This plan will enhance our market position in Thailand where the steel demand outlook is uniquely strong, compared to other regions in the world.”
For Q2/2012 Results, the Company and its subsidiaries reported net loss of Baht 5,022 million in Q2/2012, comparing to net loss of Baht 2,841 million in Q1/2012 and Baht 1,053 million in Q2/2011 respectively. The operational performance were in line with the company’s expectation, but the financial result was a result of the adverse impact of financial crisis in Europe, which caused a large drop in steel and raw material prices, and the higher conversion costs during the start-up period of the Iron and Steel Making Business. The Company also set up additional provision on loss from diminution in value of inventories and on loss under onerous contract of Baht 451million. HRC Business maintained normal HRC sales volume in spite of the ongoing market dumping of boron-added flat products, and HRC Rolling Margin recovered to 15.8%. The Iron and Steel Making Business started to produce slabs from mid-April, and smoothly produced 477 k tons up to the end of June. In this quarter, the Company received slab from SSI UK totaling approx. 134 k tons.
Mr. Win addes that “our HRC Business’s sales volume and HRC Spread had normalized. Our Iron and Steel Making Business had successfully started up steel production in mid-April and is ramping up production towards the break-even point. But the world economy and steel market in Q2/2012 had been very unstable, causing a sharp drop in steel and raw material prices from May. To be prudent, both businesses need set for stock loss provision in the end of the quarter. As a consequence, the financial result of this quarter did not reflect the achievement and improvement of our main businesses.”
“The most important things for the Company in the second half of the year is to return to profit and to strengthen our balance sheet. There are 3 key drivers. One, we are on plan to achieve record revenue Bt. 60,000 million this year, thanks to our self-sufficiency in raw material supply. Two, steel and raw material prices are bottoming out and starting to stabilize, which will bring our margins back to normal. Three, the Comprehensive Financial Plan which will strengthen our balance sheet and provide us with sufficient working capital for the business expansion,” Mr. Win addes.
About SSI
Sahaviriya Steel Industries PLC or SSI is ASEAN’s largest fully-integrated flat steel producer with 4 million ton annual capacity of hot rolled steel sheet in coils (HRC). SSI focuses on the development and production of high-grade steel sheets to cater to the region’s growing demand in various sectors such as automobile, energy, transportation and construction sectors. Sahaviriya Steel Industry UK Limited (“SSI UK”), a wholly-owned subsidiary, acquired a fully-integrated iron-steel making facility located at Teesside in the northeast of UK. The 3.6 million tons per annum steel plant, now renamed SSI Teesside, will supply high-grade steel slabs to feed SSI’s growing demand along with many other rolling mills around the world. In addition, SSI has joint-venture investments in downstream plants - namely Thai Cold Rolled Steel Sheet PLC (“TCRSS”) - Thailand’s first and largest cold roll mill, and Thai Coated Steel Sheet Co Ltd (“TCS”) - Southeast Asia’s first and largest electro-galvanizing line. All SSI’s plants in Thailand are located on a world-class coastal industrial site in Bang Saphan, Prachuap Khirikhan Province, 400km south of Bangkok on the western peninsula of Thailand, where they are efficiently integrated with its privately-owned deep-sea port (Prachuap Port Co Ltd or PPC), which allows import of raw materials and export of finished products on a large economy of scale. SSI extends its engineering capabilities into its wholly-owned subsidiary, West Coast Engineering Co Ltd or WCE, which specializes in engineering, maintenance, spare parts production, fabrication, erection and commissioning service. Our people’s passion and energy is captured in the Company’s vision statement - “innovate premium value steel products and services for customers; generate consistent profit and sustainable value for stakeholders.”
For further information, please visit the Company’s website at http://www.ssi-steel.com
About Vanomet Holding AG (“Vanomet”)
Vanomet is one of the world's largest independent steel trading companies with turnover of approximately USD 4,000 mm in 2012. Vanomet, registered under Swiss law, was founded in 1991 by Ruedi Mathis, a steel specialist with many years of experience in the industry, providing a full range of services tailored to specific clients’ needs including consulting, financing, marketing, trust services, and logistics. Currently, Vanomet is a diversified international trading company with its head office in Zug, Switzerland handling steel products and non-ferrous metals through a large network of offices and agencies throughout the world. Vanomet consists of five wholly-owned subsidiaries which are Vanomet AG, Vanomet Finance AG, Vanomet International AG, Vanomet Asia AG, and Atlantic Steel AG. Please visit Vanomet Holding AG Web site at www.vanomet.com for more information.