Lion Diversified's Stake In Lion Corp

Posted yesterday: Flashback On Lion Diversified's RPT Transactions

In which I highlighted one of the RPT.

• A wholly-owned subsidiary of the Company, Limpahjaya Sdn Bhd, has disposed of 66,666,667 ordinary shares of RM1.00 each in Megasteel Sdn Bhd ("Megasteel"), representing approximately 11.1% of the existing issued and paid-up share capital of Megasteel to Lion Diversified Holdings Berhad for a cash consideration of RM100,000,000.

On today's Financial Edge Daily: LDHB explains why it didn't consolidate Lion Corp's results

The following sentence caught my attention.

• In an announcement here today, LDHB said despite it holding a 59% stake in LCB, it has continued to treat LCB as an associated company, in accordance to Financial Reporting Standard 127.......................

So Lion Diversified (LDHB) owns a 59% stake in Lion Corp (LCB)....hmmm.... now isn't this a fine web when the 11.1% stake was sold by LCB to LDHB for 100 million!

Yeah... don't you simply love them RPTs?

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A Quick Look At Lion Corp And Lion Diversified's Earnings

Posted early this month: Megasteel And Lion Corp And Lion Diversified

I had a look at Lion Corp's earnings. Tonight Lion Corp reported its earnings. It wasn't good. Losses were huge. It lost some 400 million this quarter and losses this year totalled a massive one billion ringgit

I had a look at the balance sheet. It's inventories shrank. Worse still its cash balances fell to just 98 million compared to 141 million a quarter ago!



And their loans?

Ahh... there's one silver lining her. Loans declined to 'just' 2.989 billion.

ps.. the other Lion wasn't too good either.

Posted on the Edge Financialy Daily:

• LionDiv, Lion Corp sink further into the red
  Written by Joseph Chin
  Thursday, 27 August 2009 20:26
  
  KUALA LUMPUR: LION DIVERSIFIED HOLDINGS BHD [] (LionDiv) sunk deeper into the red in the fourth quarter ended June 30, 2009 with a net loss of RM361.49 million compared with net loss of RM1.98 million a year earlier, due mainly to losses at its associates.
  
  In its statement to Bursa Malaysia, Lion Diversified said its 4Q revenue rose to RM254.14 million from RM140.72 million. Loss per share widened to 25.97 sen from 0.27 sen.
  
  LionDiv said it was impacted by losses of RM345.58 million from associates in the quarter, compared with gains of RM16.24 million a year earlier. However, there was an unrealised foreign exchange (forex) gain of RM17.83 million in the 4Q09.
  
  For the FY09, net losses totalled RM627.78 million, compared with net profits of RM52.75 million for FY08. However, it registered a marginally higher profit from operations of RM204 million even though revenue fell to RM1.25 billion from RM1.61 billion.
  
  The full-year contribution from the new direct reduced iron operation, which commenced in June 2008, had partially mitigated the dilution impact from the divestment of the retail business in the previous year.
  
  "Our associates recorded substantial losses for the year as a result of the sudden and sharp drop in international steel prices. Demand weakened considerably as major economies begin to fall into recessionary conditions. After accounting for unrealised forex losses resulting from the translation of US dollar bonds, a loss before taxation of RM585 million was posted for the year under review," it said.
  
  Meanwhile, its 59.04% owned subsidiary Lion Corp Bhd also posted higher net loss of RM406.38 million for its fourth quarter ended June 30, compared with a net loss of RM44.57 million a year earlier.
  
  Its revenue plunged 74.5% to RM408.38 million from RM1.60 billion in the previous corresponding period.
  
  "The results of the group continued to be affected by the global recession and uncertainties surrounding the global economic recovery. For the quarter under review, the group has further recognised a provision for diminution in value of its steel inventories amounting to RM159.3 million," Lion Corp said in notes to its quarterly results.
  
  It anticipated results to be better in the next financial year on the back of an improved operating environment.
  
  
  

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Megasteel And Lion Corp And Lion Diversified

Posted yesterday: How Deep A Trouble Is Megasteel In?

• 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.

Let's have a look at Lion Corp.

From Lion Corp last reported earnings: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Its financial costs are rather high at 125 million per quarter! Losses for the quarter is more than 540 million!

Cash balances is at 141 million.

Now look at the size of their loans! 4.19 Billion!!!!!!!!

Now surely Houston this is a problem!

And it was really mind boggling about their planned Vietnam project which is estimated at USD9.8 billion or some 34 billion ringgit!!!

How could they ever afford such a massive project?

Now we have Megasteel in default of loan payment.

Now this is not all.

If one reads the earnings notes, we will see the following.

• A wholly-owned subsidiary of the Company, Limpahjaya Sdn Bhd, has disposed of 66,666,667 ordinary shares of RM1.00 each in Megasteel Sdn Bhd ("Megasteel"), representing approximately 11.1% of the existing issued and paid-up share capital of Megasteel to Lion Diversified Holdings Berhad for a cash consideration of RM100,000,000.

WOW!

Brilliant move by Lion Corp eh?

They managed to sell 11.1% of their shares in Megasteel to its left hand (or is it right hand) Lion Diversified.

Did the earnings note say 100,000,000?

Lots of zeroes there yo!

My that looks like 100 million!!! And so much moolah for a mere 11.1% stake?!

WOW!

How much is this Megasteel worth????

Any math experts here?

Anyway, so how is Lion Diversifed doing?

Here is their last earnings note: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

They lost some 296 million!

Now I had posted on Lion Diversified earnings before. This was my last update in Feb 2009. Comments On Lion Diversified Earnings

I had focused on three issues. Cash, Receivables and Loans.

Let's do a comparison. I will re-paste these 3 points and I will add in how they did in May in green bold font.

• 1. Cash balances increased to 302.428 million from 176.745 million three months ago. And if you look at the cash flow, the cash balance increased thanks to the fact that some 327 million was raised from the issuance of ICULS. Could you imagine the cash balances if this 327 million wasn't there?

Cash decreased from 302 million to just 143.364 million. Cash flow showed purchase of associate/subsidiary. LOL! Hello Megasteel!!!! ( How handy was that ICUL sale!!!!)

• 2. Trade receivables exploded to 683.976 million! Three months ago it was only 511.587 million.(what on earth is happening??????)

Receivables is now at 452.217 million. Improvement.

• 3. Total loans is now 1.001 Billion versus 986.542 million reported in its previous quarterly earnings!

Loans decreased to 952.377 million. ( So much loans and yet Lion D decided to buy a stake in Megasteel for 100 million!!! oO)

How?

If you are a Lion Diversified shareholder, are you happy with Lion Diversified buying a 11.1% in Megasteel only to read that Megasteel is now in default of its loans?

( Ah.. if really interested in some older stuff, look at this posting back in 2006: Lion Deal So Good? )

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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.

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