How Deep A Trouble Is Megasteel In?

On Edge Financial Daily: Lion says Megasteel to sell assets to pay debt

• Lion says Megasteel to sell assets to pay debt
  Written by Bloomberg
  Thursday, 06 August 2009 11:35
  
  KUALA LUMPUR: Lion Group, which owns steel, property and retailing businesses, said its unit Megasteel Sdn Bhd plans to sell assets to pay debt and is getting support from lenders to reschedule RM1.05 billion of loans.
  
  “We have received positive indication from the lenders” and “so far, we have obtained approvals from some of them with the rest expected to revert in due course,” Lion said in an email to Bloomberg News. “Megasteel intends to sell some of its non-core assets.”
  
  Megasteel, a steel mill owned by Lion Corp, part of the Lion Group, failed to meet payment on the loans as the weaker global economy hurt the company’s financial performance.
  
  Megasteel is in the “final stage” of negotiating with Bank Pembangunan Malaysia Bhd and the syndicated term-loan lenders in order to meet its financial obligations, Lion Corp said in a statement on Monday.
  
  Lion Corp’s shares gained as much as 1.1% yesterday to 48 sen, but closed lower at 46.5 sen, down one sen from the previous day.
  
  The lenders haven’t declared that an event of default has occurred, the statement said. Malaysia’s stimulus plans and a recovery in the global economy will help revive demand for steel products, Lion said in the email yesterday.
  
  The steel industry has “picked up” and steel prices have “stabilised”, it said. “We are already seeing signs of improved orders for our steel products.” — Bloomberg
  
  
  This article appeared in The Edge Financial Daily, August 6, 2009.

I was always bemused by that Megasteel project.

Last time, during the Asia Financial crisis, Lion group got into massive trouble due to massve debts.

It survived barely after major group restructuring ( Yeah, for me, restructure is a correction of its mistakes. :p2 ) but then came its proposed steel plant project in Vietnam. And what blew my mind was that project was valued at some US9.8 Billion. I was bewildered. Lion Group is not in the best of financial health and why does it want to be involved in such a huge project? It was like deja vu all over again.

And it did not shock me at all when on Tueday there were news that Megasteel defaulted on its loans.

• Tuesday August 4, 2009
  
  Lion unit in default of credit facilities
  
  PETALING JAYA: Megasteel Sdn Bhd, a subsidiary of Lion Corp Bhd, is in default of a credit facility granted by Bank Pembangunan Malaysia Bhd and a syndicated term-loan facility granted by syndicated term-loan lenders.
  
  However, Megasteel remains “solvent as it will be able to pay all debts as and when they fall due within a period of 12 months from the date of this announcement,” Lion Corp told Bursa Malaysia yesterday.
  
  It said the downturn in the global financial and commodities market since the fourth quarter of 2008 had caused a “drastic weakening” of the domestic and global steel markets, adversely affecting Megasteel’s financial performance.
  
  “As a result, Megasteel was not able to meet the principal payment due in respect of the credit facilities,” it said.
  
  As at July, Megasteel’s total outstanding principal amount stood at RM47.6mil for the Bank Pembangunan credit facility and RM1bil for the syndicated term-loan.
  
  Lion Corp said Megasteel was in the final stages of negotiations to schedule the repayment of the credit facilities. ( source: http://biz.thestar.com.my/news/story.asp?file=/2009/8/4/business/4449858&sec=business )

Aren't you amazed? The current loan amount is rm47.6 mil for credit facility and rm1 bil for syndicated term-loan. And Megasteel had already defaulted.

So what do you expect for it's steel plant project? That's worth some 34 Billion plus!

Which was why end July there were news out that Lion Group is reconsidering this project: http://www.intellasia.net/news/articles/business/111270562.shtml

But that's not what I want to say.

I am not keen on the steel sector at all. Them locals experts like OSK had repeatedly made buy calls based on assumption that the steel players will return to profitability. Yeah, them steel makers are STILL losing money. How ironic. Look at them steel stocks. See how much they had gained recently. ( lol - yeah, i do believe you know what I am trying to question here. Yeah and the price targets given to LionInd had been truly incredible. lol )

Anyway, in the posting Life Is Grand For Parkson Holdings, I had mentioned Lion's bossie had been disposing his shares a lot.

Now when one put today's article on Lion Group selling asset to pay its debts into perspective, aren't you a bit concerned? The steel business of Lion Group is in deep trouble yet again and stern actions like selling assets to repay debts is now being considered.

So how now my dearest?

Are you a bit concerned?

Or you reckon that this worries are way overblown.