Analysts warn of fire sale as firm tries to restructure debts
By Gabriel Chen 30 October 2008
Debt-ridden Chinese steelmaker FerroChina has offered a fresh glimpse of the crushing extent of its financial woes.
The Singapore-listed company said yesterday it is facing a deluge of 169 lawsuits from lenders and suppliers totalling about 4.5 billion yuan (S$985 million).
Many of these creditors have won court orders to freeze its group assets, it said in a stock market announcement.
Analysts warn that FerroChina might be forced to hold a fire sale of its assets given that its problems coincide with the global financial crisis.
The latest details come about three weeks after the firm said it was unable to pay loans worth 706 million yuan due to financial and economic difficulties.
FerroChina also said it is in talks with major creditors to restructure its debt.
Various creditors of its China subsidiaries, including lenders and suppliers, have commenced court proceedings to claim amounts owed by these units, it said.
The China units include: Changshu Xinghai Advanced Building Material, Changshu Xingyu Advanced Building Material, Tianjin Everbright Material Technology, Changshu Changgang Steel Plate and Changshu Everbright Material Technology.
FerroChina said the majority of creditors had won court orders to ‘preserve’ and ‘freeze’ the assets and properties of these units. ‘The assets that are affected by such court orders include the subsidiaries’ plants and machinery, inventory, fixtures and bank accounts.’
On Oct 9, the company, which has about 3,800 shareholders, said it was unable to repay 706 million yuan of its working capital loans which had become due.
It also said loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were due soon.
News of FerroChina’s financial problems stunned market watchers. One analyst said at the time that recent meetings with company management had ‘yielded no inkling of such problems’.
Since then, the steelmaker has disclosed that it is in talks with the government of Changshu city, where some of its operations are located, and the creditors of one of its units on the possibility of resuming partial operations.
This would allow FerroChina to generate cash flow to sustain further operations and repay creditors.
The company had earlier set up two management task forces - onshore and offshore - to drive restructuring efforts.
It has also appointed Rajah & Tann LLP as its legal adviser, while naming Ernst & Young Solutions LLP as its financial adviser on its restructuring.
Yesterday, it said the task forces are working with advisers on a ‘restructuring proposal’. They are in touch with creditors and potential investors.
Industry watchers said the restructuring plan for FerroChina - whose shares have been halted from trading since Oct 7 - could take six months or longer.
Still, with the cash-flow crunch, there are fears that any equity investor might hold back or push for a lower valuation, which could result in a big dilution of share value for existing shareholders.
‘It’s key that they get investors to help pump in working capital,’ said an industry watcher. ‘They don’t seem to have enough cash to regenerate the business and in the current economic crisis, it’s unclear how much profit they can generate to repay equity investors and debt-holders.’
An analyst noted that FerroChina might even put up the company or its assets for sale, if the firm is unable to find equity investors for cash injections.
‘It’s a problem for the company when the bankers are pulling their credit lines. It sets off a chain reaction. When one pulls, the others pull too,’ he said.
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169 suits against FerroChina
Analysts warn of fire sale as firm tries to restructure debts
By Gabriel Chen
30 October 2008
Debt-ridden Chinese steelmaker FerroChina has offered a fresh glimpse of the crushing extent of its financial woes.
The Singapore-listed company said yesterday it is facing a deluge of 169 lawsuits from lenders and suppliers totalling about 4.5 billion yuan (S$985 million).
Many of these creditors have won court orders to freeze its group assets, it said in a stock market announcement.
Analysts warn that FerroChina might be forced to hold a fire sale of its assets given that its problems coincide with the global financial crisis.
The latest details come about three weeks after the firm said it was unable to pay loans worth 706 million yuan due to financial and economic difficulties.
FerroChina also said it is in talks with major creditors to restructure its debt.
Various creditors of its China subsidiaries, including lenders and suppliers, have commenced court proceedings to claim amounts owed by these units, it said.
The China units include: Changshu Xinghai Advanced Building Material, Changshu Xingyu Advanced Building Material, Tianjin Everbright Material Technology, Changshu Changgang Steel Plate and Changshu Everbright Material Technology.
FerroChina said the majority of creditors had won court orders to ‘preserve’ and ‘freeze’ the assets and properties of these units. ‘The assets that are affected by such court orders include the subsidiaries’ plants and machinery, inventory, fixtures and bank accounts.’
On Oct 9, the company, which has about 3,800 shareholders, said it was unable to repay 706 million yuan of its working capital loans which had become due.
It also said loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were due soon.
News of FerroChina’s financial problems stunned market watchers. One analyst said at the time that recent meetings with company management had ‘yielded no inkling of such problems’.
Since then, the steelmaker has disclosed that it is in talks with the government of Changshu city, where some of its operations are located, and the creditors of one of its units on the possibility of resuming partial operations.
This would allow FerroChina to generate cash flow to sustain further operations and repay creditors.
The company had earlier set up two management task forces - onshore and offshore - to drive restructuring efforts.
It has also appointed Rajah & Tann LLP as its legal adviser, while naming Ernst & Young Solutions LLP as its financial adviser on its restructuring.
Yesterday, it said the task forces are working with advisers on a ‘restructuring proposal’. They are in touch with creditors and potential investors.
Industry watchers said the restructuring plan for FerroChina - whose shares have been halted from trading since Oct 7 - could take six months or longer.
Still, with the cash-flow crunch, there are fears that any equity investor might hold back or push for a lower valuation, which could result in a big dilution of share value for existing shareholders.
‘It’s key that they get investors to help pump in working capital,’ said an industry watcher. ‘They don’t seem to have enough cash to regenerate the business and in the current economic crisis, it’s unclear how much profit they can generate to repay equity investors and debt-holders.’
An analyst noted that FerroChina might even put up the company or its assets for sale, if the firm is unable to find equity investors for cash injections.
‘It’s a problem for the company when the bankers are pulling their credit lines. It sets off a chain reaction. When one pulls, the others pull too,’ he said.
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