Steelmaker defaults on $152m in loans; more liabilities coming up for payment
By Lee Su Shyan 10 October 2008
THE credit crunch claimed its first casualty in Singapore yesterday when steelmaker Ferrochina said it would default on loans worth 706 million yuan ($152 million).
The board of directors, headed by chairman and chief executive She Chun Tai, told the Singapore Exchange (SGX) that the loans were due but because of the current economic crisis, it could not repay part of these loans.
Ferrochina also disclosed that loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were also coming up for payment.
These leave Ferrochina staring at a black hole of 5.2 billion yuan, while its 3,800 or so shareholders will be left with stock that may be potentially worthless.
Trading in the stock was halted after the market closed on Tuesday. Investors had feared that the company faced a funding crisis, but no one expected that it would actually default on its loans.
The last Ferrochina announcement to the SGX came on Sept 16, when the company said it had installed a new production line that would allow it to sell additional products. It also said it had identified a potential investor who was already carrying out a due diligence.
However, the firm also warned shareholders to exercise caution in trading the stock and said it would update investors on further developments.
Yesterday’s events still shocked investors, who have now seen the global financial crisis land on their doorstep.
Just last month, both OCBC Investment Research and DMG had ‘buy’ calls on Ferrochina.
OCBC said on Sept 18 that Ferrochina ‘deserves better for its pedigree’.
‘We met management for an update recently and were reassured of its business continuity in the midst of rumours of financing difficulties.
‘Our concerns were allayed and management updated that it continues to execute its expansion plans with adequate financing opportunities. Although the management could not be explicit about ongoing negotiations, rumours of the failure of its strategic investor were also put to rest.’
In August, there might have been some early warning signs when Ferrochina’s share price came under pressure despite its half-year profits almost tripling to 418.9 million yuan. The management denied that there was any negative developments.
Ferrochina said yesterday it ‘is currently in active negotiations with its financial lenders to explore various options, including refinancing, to address its repayment obligations’.
It cautioned, though, that there was no assurance it would succeed, given weak capital markets and the economic conditions.
According to sources close to Ferrochina, ‘there is no evidence of anything untoward at the company’.
Steel prices have fallen sharply recently, affecting the levels at which the company can sell its steel coils.
They are facing funding pressures, said market observers.
Based on its Dec 31 annual report, Ferrochina banked with the China branches of Citibank, BNP Paribas, China Construction and Commerzbank.
It is understood that as some loans came due, the banks did not want to roll-over the outstanding amounts and demanded repayment. This left Ferrochina with no choice but to throw in the towel, albeit for a time.
It said yesterday it has temporarily stopped operations at its factories in Changshu City, in Jiangsu Province.
Sources say shuttering the factories is a precautionary move, as disgruntled creditors or workers may try to seize the company’s assets.
Mr Patrick Ang, of Rajah & Tann, has been appointed as Ferrochina’s lawyer, with a financial adviser yet to be named.
The shares last ended half a cent lower at 54.5 cents on Tuesday, with 17.4 million shares traded. A year ago, it was trading at a record level of $2.70.
The SGX said: ‘We have contacted some of the board members and management of Ferrochina, and are closely monitoring the situation. The company has made updates and is aware of its responsibility to keep investors informed and the market updated on the developments.’
According to the annual report, Mr She, the chairman, is based in China. The three independent directors - Mr Eric Low, and lawyers Loo Choon Chiaw and Low Seow Juan - are from Singapore.
Yesterday’s shocker from Ferrochina raised fresh jitters in the market about the fate of China Printing and Dyeing, which called for a trading halt on Wednesday afternoon.
Trading of Ferrochina shares has now been suspended until a scheme of repayment is worked out.
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Ferrochina: 1st Victim Here of Credit Crunch
Steelmaker defaults on $152m in loans; more liabilities coming up for payment
By Lee Su Shyan
10 October 2008
THE credit crunch claimed its first casualty in Singapore yesterday when steelmaker Ferrochina said it would default on loans worth 706 million yuan ($152 million).
The board of directors, headed by chairman and chief executive She Chun Tai, told the Singapore Exchange (SGX) that the loans were due but because of the current economic crisis, it could not repay part of these loans.
Ferrochina also disclosed that loan facilities of 2.03 billion yuan and loans for working capital of 2.49 billion yuan were also coming up for payment.
These leave Ferrochina staring at a black hole of 5.2 billion yuan, while its 3,800 or so shareholders will be left with stock that may be potentially worthless.
Trading in the stock was halted after the market closed on Tuesday. Investors had feared that the company faced a funding crisis, but no one expected that it would actually default on its loans.
The last Ferrochina announcement to the SGX came on Sept 16, when the company said it had installed a new production line that would allow it to sell additional products. It also said it had identified a potential investor who was already carrying out a due diligence.
However, the firm also warned shareholders to exercise caution in trading the stock and said it would update investors on further developments.
Yesterday’s events still shocked investors, who have now seen the global financial crisis land on their doorstep.
Just last month, both OCBC Investment Research and DMG had ‘buy’ calls on Ferrochina.
OCBC said on Sept 18 that Ferrochina ‘deserves better for its pedigree’.
‘We met management for an update recently and were reassured of its business continuity in the midst of rumours of financing difficulties.
‘Our concerns were allayed and management updated that it continues to execute its expansion plans with adequate financing opportunities. Although the management could not be explicit about ongoing negotiations, rumours of the failure of its strategic investor were also put to rest.’
In August, there might have been some early warning signs when Ferrochina’s share price came under pressure despite its half-year profits almost tripling to 418.9 million yuan. The management denied that there was any negative developments.
Ferrochina said yesterday it ‘is currently in active negotiations with its financial lenders to explore various options, including refinancing, to address its repayment obligations’.
It cautioned, though, that there was no assurance it would succeed, given weak capital markets and the economic conditions.
According to sources close to Ferrochina, ‘there is no evidence of anything untoward at the company’.
Steel prices have fallen sharply recently, affecting the levels at which the company can sell its steel coils.
They are facing funding pressures, said market observers.
Based on its Dec 31 annual report, Ferrochina banked with the China branches of Citibank, BNP Paribas, China Construction and Commerzbank.
It is understood that as some loans came due, the banks did not want to roll-over the outstanding amounts and demanded repayment. This left Ferrochina with no choice but to throw in the towel, albeit for a time.
It said yesterday it has temporarily stopped operations at its factories in Changshu City, in Jiangsu Province.
Sources say shuttering the factories is a precautionary move, as disgruntled creditors or workers may try to seize the company’s assets.
Mr Patrick Ang, of Rajah & Tann, has been appointed as Ferrochina’s lawyer, with a financial adviser yet to be named.
The shares last ended half a cent lower at 54.5 cents on Tuesday, with 17.4 million shares traded. A year ago, it was trading at a record level of $2.70.
The SGX said: ‘We have contacted some of the board members and management of Ferrochina, and are closely monitoring the situation. The company has made updates and is aware of its responsibility to keep investors informed and the market updated on the developments.’
According to the annual report, Mr She, the chairman, is based in China. The three independent directors - Mr Eric Low, and lawyers Loo Choon Chiaw and Low Seow Juan - are from Singapore.
Yesterday’s shocker from Ferrochina raised fresh jitters in the market about the fate of China Printing and Dyeing, which called for a trading halt on Wednesday afternoon.
Trading of Ferrochina shares has now been suspended until a scheme of repayment is worked out.
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