By looking at their previous developments, Lion Industries will be a better choice among them.
In the case for Lion Diversified, it is proposing to undertake a rights issue of irredeemable convertible unsecured loan stocks (ICULs) to raise up to RM591.9 million to part finance its blast furnace. Apart from part financing the blast furnace, the proceeds from the renounceable rights issue would be utilised for working capital requirements, repayment of bank borrowings and related investments of the LDHB Group.
At least 75% will be utilised to part finance the blast furnace, including re-payment of a shareholder advance to be made by Cheng amounting to RM95 million. The shareholder advance will be made by Cheng prior to the rights issue to part finance the blast furnace iron-making facilities.
The company stated that the proposed rights issue of ICULS will provide an opportunity for the existing shareholders of LDHB to further participate in the equity of the company from the conversion of the ICULS.
The company stated that the issuance of the ICULS minimises the immediate dilution effect on the earnings per share of the company, which would otherwise arise from a direct issuance of shares. Following the conversion of the ICULs, which has a tenure of five years, the share capital of LDHB will increase up to RM646.5 million from its present RM368.6 million.
The beneficairies Of the above corporate exercise ...
Megasteel (Lion Corp’s subsidiary) will receive a big boost from Lion Diversifed (Lion Corp’s associate). The latter is spending Rm1 billion on a direct-reduced iron (DRI) plant and another rm2 billion to build a blast furnace and related facilities next to Megasteel’s flat steel plant in Banting. The facilities will produce feed stock at a competitive cost, for the benefit of Lion Corp’s HRC operation (Megasteel)
The bulk of the HRC is sold to the domestic market. Profits generated by Megasteel will be used to cover Lion Corp’s hefty finance cost and leave a decent bottom line.
Lion Corp’s main problem remains its huge dent of rm3.9 billion (net of cash) as at Dec 2007. This is consolidated at Lion Corp and Mesgateel, considering that Lion Corp owns only an associate stake of about 42% in Lion Ind, the only listed company that it directly owns. The huge debt position translated into a hefty finance cost of more than rm400 million a year for Lion Corp, hence taking a heavy toll on the company’s bottom line.
Lion Group Structure … as at Dec 2007
Tan Sri William Cheng
-> Lion Corp (Net Debt: RM2.36 billion) 74.47%
-> Lion Industries Corp (Net Debt: RM1.47 billion) 25.6%
-> Lion Diversified Holdings 22.5%
-> Parkson Holdings 22.3%
-> Lion Forest Ind 80%
-> Megasteel 90%
-> Amsteel Corp 40.1%
-> Silverstone 47% (Tan Sri William Cheng & Lion Group related
companies own 58.9%)
-> Lion Diversified Holdings 31.8% (ICULS can be converted into 125 mil
new shares in Parkson)
-> Parkson Holdings 31.8%
-> Parkson Retail Group 55%
What’s Up? … dated Nov 2007
Tan Sri Cheng owns nearly 75% of Lion Corp means the company is still to his heart and he has to do a lot more for the group’s flagship.
Lion Corp’s biggest investment is its 90% owned subsidiary Megasteel Sdn Bhd, which manufacturers hot roiled coil (HRC) steel. The company also borrowed heavily to fund Megasteel’s HRC venture and is until now (2007) saddled with net borrowings (minus cash) of RM2.36 billion in bonds and debt. Some 19% of the borrowings are redeemable within a year, while the remaining 81% are due for repayment in five years (2012).
Being at the top of the group’s structure, Lion Corp has been unable to draw on the stronger companies at the bottom.
Briefly, Lion Corp, together with Megasteel, owns 40% of Lion Ind, whose core businesses is the production of HBI and steel bars. Lion Ind has borrowings of Rm2.18 billion in bonds and debt and has cash holdings of RM711 million. It has been reduced to RM1.47 billion. Some of Lion Ind’s borrowings are due for repayment within a year (2007-2008).
Lion Ind …
Compared to Lion Corp, Lion Ind will have less difficulty in repaying its debt. It has enough cash in the bank to meet its current loan obligations. Meanwhile, its HBI and steel bar businesses are churning out strong profits and cash flow. For FY2007, Lion Ind’s net profit amounting to RM213 million while net operating cash flow (operating profits before working changes) was RM450.3 million. Forecast are that it will generate net operating cash flow at RM408 million in FY2008 and RM360 million in FY2009.
Lion Corp …
Its debt burden and its challenging HRCB business requires massive capital spending to make the operations competitive.
It still reported a net loss of RM181 million after accounting for an impairment loss of RM372 million from its investment in associated companies (Amsteel) and finance costs of RM444 million. Hefty financing costs remain a key issue for Lion Corp.
The strong operating profits for FY2007 raised Lion Corp’s net operating cash flow from RM205 million a year to RM444 million. But the repayment of interest on loans took up RM214 million or nearly half its yearly net operating cash flow, leaving less than RM230 million for debt repayment and capital expenditure among others.
Lion Corp is suffering from mismatch between cash flow and debt. Management is still exploring several options to restructure the debt to better match operations cash flow.
Lion Industries
The company is now (April 2008) left with 196.3 million shares in Parkson representing a 19.9% equity stake in the retail outfit. LICB would use the RM46.4 million raised from the latest disposal of shares in Parkson for the repayment of borrowings.
It has received an investment licence for a joint venture with Vietnam 's top shipbuilding group Vinashin to build a US$9.8 billion (RM33.63 billion) steel mill. The project, located in the south central province of Ninh Thuan , will have an annual capacity of 14.42 million tonnes of crude steel per year. The 50-year joint venture will start construction of the facility next year (2009) and complete the first phase of the mill in 2011.
GKG Investment Holdings Pte Ltd of Singapore holds 35.46 million shares or 4.98%. The largest shareholder in Lion Industries is Lion Corporation Bhd with 25.36% or 180.57 million shares while Megasteel Sdn Bhd owns 102 million shares or 14.36% and Lion Diversified Holdings Bhd 36.72 million shares or 5.16%.
Financial Results … 3Q2008 – 4Q2008
Lion Industries Corp Bhd's net profit for the third quarter ended March 31 soared 388% to RM200.81mil compared with a year earlier, while revenue rose 35.29% to RM1.69bil.
The improvement was due to higher selling price of steel, better profit margins and a gain on disposal of shares in associated companies.
During the quarter, it booked a RM56mil gain from disposal of shares in associated companies. Lower finance costs had further increased pre-tax profit by 72% to RM406.6mil against RM236.7mil in the previous corresponding period.
It also said associated companies in retail operations continued to contribute positively to earnings.
In the third quarter, steel contributed RM1.59bil to revenue, tyres accounted for RM18.18mil while other divisions contributed RM83.25mil.
For the nine months to March 31, net profit jumped 94% to RM390.03mil from RM201.21mil a year earlier.
Revenue expanded 33% to RM4.76bil from RM3.58bil while earnings per share rose to 55.04 sen from 28.86 sen.
It posted a substantially higher net profit of RM861.9 million for the financial year ended June 30, 2008 (FY08), compared with RM212.7 million in FY07.
This was mainly due to the surge in international steel prices and better operating environment, and a gain on disposal of shares in associated companies and lower finance costs.
Earnings per share jumped to RM1.22 from 30.44 sen previously, while FY08 revenue grew 53% to RM6.94 billion from RM4.55 billion.
For the fourth quarter, its net profit of RM471.8 million dwarfed the previous corresponding quarter’s earnings of RM11.49 million, while revenue surged 81% to RM2.17 billion from RM1.2 billion previously.
Lion Diversified
It is proposing to undertake a rights issue of irredeemable convertible unsecured loan stocks (ICULs) to raise up to RM591.9 million to part finance its blast furnace.
Apart from part financing the blast furnace, the proceeds from the renounceable rights issue would be utilised for working capital requirements, repayment of bank borrowings and related investments of the LDHB Group.
Under the proposal, each shareholder holding five ordinary shares of LDHB would be entitled to subscribe for four ICULs at a nominal value of RM1. The ICULs carry a coupon payment of 4% per annum. Tan Sri William Cheng has a direct 16.4% stake in LDHB and indirectly controls another 41.96% of the company. Assuming only the major shareholders subscribe to the rights issue, the amount raised is estimated at RM300 million.
At least 75% will be utilised to part finance the blast furnace, including re-payment of a shareholder advance to be made by Cheng amounting to RM95 million. The shareholder advance will be made by Cheng prior to the rights issue to part finance the blast furnace iron-making facilities.
The company stated that the proposed rights issue of ICULS will provide an opportunity for the existing shareholders of LDHB to further participate in the equity of the company from the conversion of the ICULS.
The company stated that the issuance of the ICULS minimises the immediate dilution effect on the earnings per share of the company, which would otherwise arise from a direct issuance of shares.
Following the conversion of the ICULs, which has a tenure of five years, the share capital of LDHB will increase up to RM646.5 million from its present RM368.6 million. What’s Up? … dated April 2008
Megasteel (Lion Corp’s subsidiary) will receive a big boost from Lion Diversifed (Lion Corp’s associate). The latter is spending Rm1 billion on a direct-reduced iron (DRI) plant and another rm2 billion to build a blast furnace and related facilities next to Megasteel’s flat steel plant in Banting. The facilities will produce feed stock at a competitive cost, for the benefit of Lion Corp’s HRC operation (Megasteel)
Demand for HRC is growing strong. Megasteel has been ramping up its annual production. The bulk of the HRC is sold to the domestic market. This indicates that demand for HRC from the local market alone has increased significantly.
It will means Megasteel will generate enough profits to cover Lion Corp’s hefty finance cost and leave a decent bottom line.
It has a monopolistic position in Malaysia in the production of HRC, which essentially is the key ingredient for all flat steel products. Having invested a huge sum in the HRC operation, Megasteel is accorded certain protection by the government – import restrictions on products which Megasteel also manufactures.
For instance local users on HRC cannot import from abroad unless Megasteel cannot supply to their specifications. But then again, Megasteel’s prices have to be approved by the government, which sort of balances out of the protection. However, as this situation is not expected to change in the foreseeable future, the prevailing strong local and foreign demand for HRc bodes well for Lion Corp.
However, Lion Corp’s main problem remains its huge dent of rm3.9 billion (net of cash) as at Dec 2007. This is consolidated at Lion Corp and Mesgateel, considering that Lion Corp owns only an associate stake of about 42% in Lion Ind, the only listed company that it directly owns.
The huge debt position translated into a hefty finance cost of more than rm400 million a year for Lion Corp, hence taking a heavy toll on the company’s bottom line.
Lion Group, which owns steel and property businesses, has also applied for government approval to build a US$7 billion (RM22.26 billion) steel mill in Vietnam as demand for the alloy rises.
Lion joins Formosa Plastics Group and South Korea 's Posco in building steel plants in Vietnam to take advantage of rising demand as the country makes more appliances and machinery, and erects more buildings. Demand could jump to nine million tonnes this year from one million tonnes a decade ago.
The Vietnamese government could take at least a year to approve the project, which could then be built in four stages over 12 years.
Financial Results …
For the six months ended Dec 31, 2007, Lion Corp posted a net profit of only rm10 million on a turnover of rm2.31 billion. Its operating profit of rm146.31 million, generated mainly from Megasteel, was not enough to cover its fiancé cost of rm216.4 million for the six month period. Thus Lion Corp had to rely on its share of associated company profits (mainly from Lion Ind) of some rm79.4 million to be in the black.
It is worth noting that Lion Corp’s operating margin of 6.3% for the six months was lower than the 9.7% achieved in the previous period, when the company produced a higher operating profit of rm226.5 million. According to Lion Corp, higher scarp prices eroded its operating margins.
Hence, the DRI and blast furnace projects undertaken by LDHB are important to improve its competitiveness of Lion Corp’s HRC operation, not only in terms of cost but also better quality as the feedstock produced by the DRI plant and the blast furnace is cleaner.
As margins begin to improve with the sourcing of feedstock from the DRI plant and the blast furnace, and with production volume continuing to rise, Lion Corp has the strength to roar again. If the company can manage to convince its lenders and other investors to restructure its existing debts more favourably, it will be a bonus.
What’s Up? … dated Feb 2008
Lion Diversified will be investing US$500mil to build an iron-making facility, which is expected to increase the company’s revenue by 60% by end-2009. It would fund the plant using internally generated funds or borrowings or both.
In addition, the group's new RM1bil direct reduction plant with a capacity of 1.54 million tonnes per annum is expected to be commissioned by month-end and commence trial production in March 2008.
With both hot metal and DRI iron ore-based, the group’s steel operations would in future be using more than 70% iron ore and about 20%-30% scrap.
In the financial year ended June 30, 2007, the company registered a revenue of RM4.4bil.
Lion Corp/Megasteel/ACB
Megasteel Sdn Bhd, a 90% owned subsidiary of Lion Corporation Bhd (Lion Corp) will proceed with its RM36.1 million legal suit against Perwaja Steel Sdn Bhd after the Court of Appeal allowed its appeal for an injunction against the latter. Megasteel’s appeal against the decision of the High Court was allowed with costs.
The legal wrangling between Megasteel and Perwaja began late 2007, when Megasteel served a letter of demand on Perwaja in September 2007 for damages for breach of two contracts by the latter for the supply of direct reduced iron (DRI), for which Perwaja denied liability. Subsequently in October 2007, Megasteel filed a writ of summons against Perwaja for RM36.1 million, plus interests, exemplary and aggravated damages.
Perwaja then served a statutory notice on Megasteel under Section 218 (1) (e) of the Companies Act, 1965 to claim RM3.39 million for alleged non-payment of part delivery of the DRI.
Megasteel then sought an injunction to restrain Perwaja from acting on the notice, but this was dismissed by the High Court on January 11 2008.
With the appeal allowed, Perwaja is now restrained and injuncted from taking further action against Megasteel.
Lion Corporation Bhd’s subsidiary Megasteel Sdn Bhd has been granted a High Court order to convene a meeting with its term facility lenders within three months on a scheme of compromise and arrangement to facilitate the settlement of debts.
Lion Corp said it had also obtained a restraining order under Section 176 (10) of the Companies Act 1965, which will be effective for three months, to restrain legal proceedings by the scheme creditors against Megasteel.
The restraining order does not apply to other creditors and lenders of Megasteel as these creditors and lenders are and will be paid in the ordinary and usual course of Megasteel’s business.
Lion Corp said Megasteel was currently finalising its proposed debt restructuring scheme, with further details to be announced after the finalisation.
The Lion Group announced that its companies, namely Lion Corporation Bhd (LCB) and Amsteel Corporation Bhd (ACB)/Amsteel Harta (L) Ltd, are proposing to undertake a corporate and debt restructuring scheme (CDRs) to address their respective debt obligations.
The proposed plan which will allow the Lion Group to restructure and reduce its debts, will entail the conversion of LCB bonds/debts into LCB shares/redeemable convertible secured loan stocks, disposal of properties and LCB bonds by ACB, disposal of 11.1% stake in Megasteel Sdn Bhd by LCB, rescheduling of the ACB and LCB bonds/debts, and issuance of new warrants by LCB to its existing shareholders.
Thegovernment today withdrew the 15 per cent export duty on pig iron, ironand steel ingots, bars and rods, angles and sections. It also replacedthe 15 per cent ad valorem export duty on iron ore fines. The exportduty on scrap and iron ore lump remains unchanged.
The export duties on steel products and iron ore were imposed in Mayand June this year, respectively, to discourage exports and rein in therise in domestic prices. The government, in a statement, said this wasdone after the steep fall in global steel and iron ore prices in orderto make exports remunerative and save jobs in the sector.
Steel exporters hope these steps would bring some relief for them,though international prices are currently low and there is littleincentive to export.
“We are the largest exporter of billets from the country butinternational prices are very low. However, this is a good message fromthe government,” said Neeraj Singal, managing director, Bhushan Steel.
Apart from direct exports, the move would also benefit players whichsend semi-finished products to their own finishing mills outside India.
Ankit Miglani, director (commercial) of Uttam Galva Steels, said themove was extremely positive because it showed that the government wasconcerned and was willing to help the industry. He, however, felt thatwhile it (the decision) would not push up prices, it would help checkprices from collapsing.
Since September, steel prices had slumped about 10 per cent and some of the large producers expect prices to fall further.
However, the specific duty of Rs 200 per tonne on iron ore finesversus an ad valorem duty was unlikely to benefit the steel industry.Miglani said iron ore prices had dropped so much that an ad valoremduty would probably have worked out better for the steel industry thanthe specific duty. Prices of iron ore fines with more than 63 per centiron content was now available for $50 a tonne as compared with $155this April.
R K Sharma, secretary-general of the Federation of Indian MineralIndustries, said there was no buyer for Indian iron ore and the dutyshould have been withdrawn. The steel industry was hoping that therewould be more support from the government over the next few days. Theindustry was expecting an import duty of 5-10 per cent on hot rolled,cold rolled and galvanised steel products.
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