FerroChina Surprises Analysts, May Face Liquidation if no Debt Deal
10 October 2008
(XFN-SI) - The crisis facing Singapore-listed Ferrochina has completely surprised analysts who now fear the real prospect of liquidation.
The galvanized steel coil producer closed down its manufacturing operations in eastern China’s Jiangsu province after finding itself unable to repay – or reschedule – a portion of its working capital loans of 706 mln yuan.
FerroChina representatives were not available for comment, but the company warned in a statement yesterday that some 4.5 bln yuan of other debts could also mature.
FerroChina also said that it was now negotiating with lenders, but it could not say when operations could return to normal.
Livid workers in Jiangsu province were picketing the company’s facilities last night, and investors in Singapore are now asking why none of the analysts had seen this coming.
The analysts themselves expressed shock.
“I met with the company last Friday, and things were still okay, and one of our fund manager clients saw them on Monday, and there was no inkling of these problems,” said Lawrence Lye of CIMB, which had rated the company “outperform” until this week.
“There are a few options for the company, like the rescheduling of payments, and the company will probably run at a much lower key, and generate more realistic cash flows to repay loans,” Lye said.
“Of course, in the very worst case, it is liquidation. I’ve done a study on it and worked out (that they could offer) 0.35 sgd per share, against the last trading price of 0.55 sgd.”
DMG and Partners Securities said in a research note that prospects of a strategic investor coming in were slim in the near to medium term. It said China’s Ministry of Commerce has not shown much sympathy for major purchases from abroad in the steel sector, noting delays in gaining approval for Arcelor Mittal’s bid for a stake in China Oriental and a proposal from Russia’s Evraz for an investment in Delong.
DMG said, however, the government of Changshu in Jiangsu province, where FerroChina has its manufacturing operations, has offered assistance.
FerroChina was well aware of its debt problems, Lye said, but he had continued to remain positive about the prospects for the company all the way up to the surprise share suspension this week.
He noted that FerroChina had already been negotiating a refinancing package with overseas institutions.
“The company has been proactive. As far back as three months ago they were working with some of the foreign banks to issue a convertible bond of 150 mln usd, and as far as I know, by last Friday they were still working on that.”
Kelly Chia of OCBC Investment Research, which had rated the company “buy” up until the suspension of trading on Wednesday, said that the company may also have bet too much on the prospect of increasing steel prices.
“I think it might have been that they tried to book some of their feedstock - hot rolled steel – from their suppliers some time back at a relatively higher price, and as you know, the prices of these materials – and for its products, galvanized coils – have fallen relatively sharply since June,” Chia said.
“I think that they tried to expand a little bit too quickly on the anticipation that steel prices would continue to rise, and that even if the prices did taper off they would not taper off as quickly as they did,” he added.
The fundamentals behind the company are actually very strong, Chia said.
“I’ve been to the FerroChina plant and it is a huge plant, and it is extremely automated. We hope that it doesn’t fall into receivership because we like the management.”
Lye of CIMB agreed that the company was fundamentally strong, but that it had become a victim of the financial maelstrom sweeping the global economy.
“It is more about the credit crisis. The banks are just not willing to roll over loans for their customers anymore,” he said.
Analysts are looking warily at other potential trouble spots on the Singapore stock exchange.
“We are analysing some other companies that potentially have gearing issues, and are needing to refinance,” said OCBC’s Chia.
“But most of the large companies have been around for a long time and have good relationships with financial institutions. We think it is an issue of the cost of financing, rather than being able to secure financing.”
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FerroChina Surprises Analysts, May Face Liquidation if no Debt Deal
10 October 2008
(XFN-SI) - The crisis facing Singapore-listed Ferrochina has completely surprised analysts who now fear the real prospect of liquidation.
The galvanized steel coil producer closed down its manufacturing operations in eastern China’s Jiangsu province after finding itself unable to repay – or reschedule – a portion of its working capital loans of 706 mln yuan.
FerroChina representatives were not available for comment, but the company warned in a statement yesterday that some 4.5 bln yuan of other debts could also mature.
FerroChina also said that it was now negotiating with lenders, but it could not say when operations could return to normal.
Livid workers in Jiangsu province were picketing the company’s facilities last night, and investors in Singapore are now asking why none of the analysts had seen this coming.
The analysts themselves expressed shock.
“I met with the company last Friday, and things were still okay, and one of our fund manager clients saw them on Monday, and there was no inkling of these problems,” said Lawrence Lye of CIMB, which had rated the company “outperform” until this week.
“There are a few options for the company, like the rescheduling of payments, and the company will probably run at a much lower key, and generate more realistic cash flows to repay loans,” Lye said.
“Of course, in the very worst case, it is liquidation. I’ve done a study on it and worked out (that they could offer) 0.35 sgd per share, against the last trading price of 0.55 sgd.”
DMG and Partners Securities said in a research note that prospects of a strategic investor coming in were slim in the near to medium term. It said China’s Ministry of Commerce has not shown much sympathy for major purchases from abroad in the steel sector, noting delays in gaining approval for Arcelor Mittal’s bid for a stake in China Oriental and a proposal from Russia’s Evraz for an investment in Delong.
DMG said, however, the government of Changshu in Jiangsu province, where FerroChina has its manufacturing operations, has offered assistance.
FerroChina was well aware of its debt problems, Lye said, but he had continued to remain positive about the prospects for the company all the way up to the surprise share suspension this week.
He noted that FerroChina had already been negotiating a refinancing package with overseas institutions.
“The company has been proactive. As far back as three months ago they were working with some of the foreign banks to issue a convertible bond of 150 mln usd, and as far as I know, by last Friday they were still working on that.”
Kelly Chia of OCBC Investment Research, which had rated the company “buy” up until the suspension of trading on Wednesday, said that the company may also have bet too much on the prospect of increasing steel prices.
“I think it might have been that they tried to book some of their feedstock - hot rolled steel – from their suppliers some time back at a relatively higher price, and as you know, the prices of these materials – and for its products, galvanized coils – have fallen relatively sharply since June,” Chia said.
“I think that they tried to expand a little bit too quickly on the anticipation that steel prices would continue to rise, and that even if the prices did taper off they would not taper off as quickly as they did,” he added.
The fundamentals behind the company are actually very strong, Chia said.
“I’ve been to the FerroChina plant and it is a huge plant, and it is extremely automated. We hope that it doesn’t fall into receivership because we like the management.”
Lye of CIMB agreed that the company was fundamentally strong, but that it had become a victim of the financial maelstrom sweeping the global economy.
“It is more about the credit crisis. The banks are just not willing to roll over loans for their customers anymore,” he said.
Analysts are looking warily at other potential trouble spots on the Singapore stock exchange.
“We are analysing some other companies that potentially have gearing issues, and are needing to refinance,” said OCBC’s Chia.
“But most of the large companies have been around for a long time and have good relationships with financial institutions. We think it is an issue of the cost of financing, rather than being able to secure financing.”
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