Bangkok--20 Jun--Moody's Moody's Investors Service has today confirmed G Steel's B3 corporate family and bond ratings. At the same time, Moody's changed the ratings outlook to negative from stable. The confirmation concludes the review for possible downgrade initiated on November 1, 2007, following protracted negotiations over the company's refinancing of a US$120 million bridge loan which matured on October 31, 2007. "The ratings confirmation reflects G Steel's improved performance over the last 2 quarters and the reduction in the extent of its short-term liquidity risk, given its repayment of US$20 million and its successful terming out of the bridge loan to a 30-month amortizing loan due in 2010," says Kathleen Lee, Moody's lead analyst for the company. "On the other hand, the hefty size of the semi-annual repayments and increased pricing of the amortizing loan have raised the company's overall interest burden and constrained its liquidity," says Lee. "In addition, liquidity is further stretched because of G Steel's commitment to a 2-year expansion program -- which seeks to raise production capacity by end-2009 -- and because the necessary investment of US$250 million remains only partly funded," adds Lee. "Refinancing risk will also become significant in 2010 when US$45 million, representing the final instalment of the amortizing loan, falls due, while US$170 million in bonds will also mature," adds Lee. Furthermore, as the terms and conditions of the amortizing loan have not been fully disclosed, there is a risk that the cross-default provisions on the unsecured bond would be triggered if G Steel fails to comply with its loan covenants. The change in outlook to negative from stable reflects therefore this situation of tight liquidity, the presence of refinancing risk, and the lack of corporate transparency. A rating upgrade is unlikely, given the negative outlook, but a reversion of the rating outlook to stable could occur if the company improves its liquidity profile and lowers its refinancing risk. Such developments could be achieved via increased equity injections or improved profitability -- arising in turn from a satisfactory completion of its capex program -- and the emergence of synergies from its strategic alliance with G J Steel (previously Nakornthai Strip Mill), resulting in positive free cashflows. On the other hand, downward pressure could occur if its operating and liquidity profiles weaken further due to an increase in working capital requirements, an inability to pass on rising production costs, or a fall-off in domestic demand. Increases in unplanned capex -- arising from cost escalations and/or project delays -- would also pressure the ratings. Moody's expects the company to maintain average EBIT/Interest above 1x, and adjusted debt/EBITDA below 6x on a sustained basis, failing which downward rating pressure would emerge. Headquartered in Bangkok, G Steel Public Company Limited is Thailand's second largest hot rolled coil (HRC) steel manufacturer and distributor. It was founded in 1995. It recovered from a corporate rehabilitation program in September 2003 with its restructured debt subsequently pre-paid and an IPO completed in January 2006. It reported sales of24,664 million baht for the year ending March 31, 2008. Singapore Kathleen Lee Vice President - Senior Analyst Corporate Finance Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308 Singapore Tony Tsai Senior Vice President Corporate Finance Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308