SSI reaches debt-restructuring pact
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SAHAVIRIYA Steel Industries has reached an agreement with its creditors to enter debt-restructuring for the massive Bt50 billion it owes them and has pulled the plug on its upstream plant in Britain as part of its strategy to keep its core business in Tha
“The huge loss of the UK base is crimping the cash flows of SSI in Thailand, so we had to keep the hot-rolled coil steel business in Thailand going by opening negotiations with lenders,” Win Viriyaprapaikit, president of SSI, said yesterday.
After taking over the former Tata Steel complex in Britain in 2010, SSI decided to pause production there last Friday to stop the bleeding. The decision is part of its financial restructuring.
SSI swallowed net losses in the past four years of Bt981 million in 2011, Bt15.9 billion in 2012, Bt7 billion in 2013 and Bt4.9 billion in 2014.
In the first half of this year, net losses amounted to Bt6.26 billion.
SSI owes Bt50 billion to three Thai banks – Bt22 billion to Siam Commercial Bank, Bt22 billion to Krungthai Bank and Bt4.4 billion to Tisco Bank.
All three lenders will take additional provisions to boost reserves to 100 per cent of outstanding loans to SSI.
The stock prices of all three banks fell at the close yesterday – SCB by 2.08 per cent to Bt141, KTB by 2.20 per cent to Bt17.80 and Tisco by 0.68 per cent to Bt36.50.
Win said that although the UK plant had halted operations, SSI in Thailand could get steel from other upstream steelmakers to produce hot-rolled steel coils.
It’s a buyers’ market, so procuring steel from other suppliers will not affect its performance.
The economic slowdown worldwide, but especially in China, sent steel prices nose-diving to their lowest level in 12 years. The downturn in the steel cycle usually lasts only six months, but the price has remained low for nine months, he said.
The steel industry continues to provide bright opportunities for SSI. In Thailand, SSI commands about 30 per cent of the market. Some 60 per cent of its steel output in Thailand goes to the construction industry and the rest to the auto industry.
“We have to keep the business in Thailand because we don’t want to create a negative impact on our stakeholders, our buyers and traders.
“The Thai government has invested in infrastructure to drive the economy, which benefits steel demand. But what we’re seeing is an oversupply of steel from China, which has influenced us too,” he said.
Under the debt-restructuring, SSI is welcoming strategic partners.
Japanese steelmakers JFE Steel Corporation and Marubeni-Itochu Steel Inc each hold 3.53 per cent of SSI. One of these might be the first choice for a strategic partner.
SCB has reported to the Stock Exchange of Thailand that its outstanding loans to SSI and its UK subsidiary amount to more than Bt22 billion.
The additional provisions or write-offs for SSI and its affiliates would be in the range of Bt10 billion to Bt11 billion.
KTB plans to ask its board of directors to increase general provisions in order to take reserves to above 100 per cent.
The bank will provision Bt9 billion on top of the provisions of Bt11 billion to Bt12 billion for SSI to cover the whole amount it lent to SSI.
The bank could use the extra income if it doesn’t want to set aside provisions, but its coverage ratio will drop to 90 per cent from 125 per cent, said the bank president Vorapak Tanyawong.
The bank expects its total non-performing loans to increase to 3.5 per cent by the end of this year from 2.9 per cent at present, he said.
Tisco has been progressively provisioning for potential loan losses.
In the third quarter, the bank will deduct provisions of about Bt1.4 billion to Bt1.5 billion to achieve 100-per-cent reserves against its net exposure, based on the Bank of Thailand’s guidelines for collateral valuations, Vorapak said.
