Posted on 12 Jul 2013
Despite the recent downgrade of Perwaja Holdings Bhd’s bonds to non-investment grade, a default is unlikely due to new financing arrangements being made, sources said.
One banking source said: “The company (Perwaja) is in final negotiations with several banks to secure a loan facility of up to RM350mil. The money would be used for working capital and can also easily cover the tranche worth RM50mil that is maturing in the third quarter of this year.”
The source added that the banks involved in providing the new facility included RHB Bank Bhd, AmBank, Kuwait Finance House (M) Bhd, Hong Leong Bank Bhd and Standard Chartered Bank (M) Bhd.
To recap, Malaysian Rating Corp Bhd had downgraded Perwaja’s 10-year murabahah medium-term notes to BBID from BBB-ID last Friday due to its near-term liquidity concerns, poor operating performance and a significantly weaker profile.
The downgrade implied that uncertainties that could affect the ability of the issuer to make payments on the instrument issued under the Islamic financing contract existed.
However, sources familiar with the operations of Perwaja said that despite the cash-flow constraints, the company had huge stocks of steel pellets that could be sold to raise cash.
“However, because of the current low market price of steel pellets, which, in turn, had been caused by dumping by some Chinese steel makers, it does not make sense to sell at such low prices. But these stocks could be sold easily as a last resort to raise the money to repay the bonds,” the source said.
The total steel pellet stocks are said to be worth a few hundred million ringgit.
It has been reported that Perwaja was close to completing a new concentration and palletising plant. It is learnt that this new plant would be a catalyst to Perwaja’s fortunes turning around, as it would help reduce its raw material costs significantly.
Sources said that Perwaja’s management had been in contact with the bondholders to explain efforts to improve its financials.
According to Bloomberg data, holders of Perwaja’s bonds include AmInvestment Services Bhd and Allianz Life Insurance Malaysia Bhd. Perwaja produces direct reduced iron, a feedstock in steelmaking and semi-finished long products such as billets, beam-blanks and blooms.
Its production capacity is 1.5 million tonnes of direct reduced iron and 1.3 million tonnes of billets yearly.
