G Steel waiting for lifeline

G Steel waiting for lifeline

Time is running out for SET-listed G Steel Plc to clinch a deal with ArcelorMittal Netherlands BV (AM) to secure a capital injection from the world's largest steel company for the survival of the heavily indebted hot-rolled coil maker.

Despite concerns over the high cost of AM's offer and the expected dilution effect on existing shareholders, observers agree that AM's acquisition of a majority stake in G Steel is a must and will be a done deal, given the financial constraints of the company founded by steel tycoon Somsak Leeswadtrakul.

The board of directors of G Steel and subsidiary GJS earlier approved the transaction in which AM would hold 40% of G Steel and indirectly control 63.75% of GJS once the deal is completed.

The deal will be made through the sale of G Steel's newly issued ordinary shares to AM and the conversion of G Steel's debt into GJS ordinary shares and the purchase of GJS's newly issued ordinary shares.

The Securities and Exchange Commission (SEC) on Friday issued a statement recommending that G Steel's minority shareholders cautiously consider the details before voting for the plan, which is subject to endorsement by shareholders on Aug 15.

The regulator warned the shareholders not to base their decision solely on the opinion of the company's independent financial adviser, but also to seek further required information from G Steel executives as well as documents provided at the shareholders' meeting.

Under the agreement with G Steel, AM will provide a five-year credit facility worth US$500 million with an interest rate of 12% per year plus a commitment fee of 2% a year. A breakage penalty fee is set at 3-5% if all amounts borrowed under the facility are refinanced with a new deal at a lower interest rate.

AM also agreed to a 10-year business assistance deal with a service charge of 2% of total sales revenue based on G Steel's consolidated financial statements but not exceeding $40 million a year.

Surachai Pramualcharoenkit, an analyst at Kim Eng Securities, said G Steel urgently needed to make the deal.

The company's shareholders seem to understand that the transaction is critical for survival and should eventually endorse the plan, he said.

Aug 15 is the deadline for all SET-listed firms to submit their second-quarter financial statements.

"The transaction with AM seems undeniable despite a high interest-rate burden," said Mr Surachai.

If the deal is approved, G Steel will see its margin further erode because of the fee it has to pay to AM, the analyst said.

He added that the margin for hot-rolled steel is currently as poor as 7-8%.

Thailand is experiencing a glut of hot-rolled steel. G Steel and GJS have a combined capacity of 3 million tonnes per year, Mr Surachai noted.

Shares of GSTEEL closed on Friday on the Stock Exchange of Thailand at 0.69 baht, unchanged, in trade worth 193 million baht.