Posted on 20 Nov 2015
This is the second major default by the Lion Group. In September Megasteel, which is 21% owned by Lion Div, announced a default of its facilities.
Tan Sri William Cheng has a direct and indirect stake of 49% in Lion Diversified while Megasteel is largely owned by Lion Corp Bhd, another of his company.
Lion Div blamed the defaults by the units – Excel Step Investments Ltd for its bonds, Graimpi Sdn Bhd under a letter of credit facility and Lion DRI Sdn Bhd on payment for working capital facilities – on “the challenging steel operating environment as a result of rampant importation of steel products into the country at dumping prices.”
The group said this caused Lion Div to suffer losses for several years now, resulting in its inability to meet the payment of the bonds and facilities.
“The weakening of the ringgit has also resulted in the default of the partial redemption of the bonds, which are denominated in US dollar,” it added in a filing with Bursa Malaysia.
Investment holding firm Excel Step Investments is unable to pay a partial redemption amounting to US$4mil (RM17.2mil) in respect of the outstanding US$39.68mil (RM171.7mil) nominal value 6% exchangeable bonds.
Steel product trader Graimpi, meanwhile, has received notices of demand last week for RM8.65mil already due under the Murabahah Letter of Credit-i Facility (MLF) and is also expected to default on the RM2.6mil outstanding amount due on Nov 20.
Lion DRI, a direct reduced iron products maker, had on Oct 31 defaulted in payment of RM7.3mil in respect of working capital facilities (WCF).
Lion Diversified said the defaults would give rise to an event of default by virtue of the cross default provision under the loan documents in respect of working capital facility agreements with a total combined limit of about RM109.4mil and term-loan facility agreement with principal amount due of about RM14.6mil.
As at Nov 18, the total outstanding amount of these facilities amounted to about RM116.9mil.
On measures taken to address the defaults, it said Excel and its financial advisers had been having ongoing discussions with the bondholders to restructure the bonds and an announcement would be made when an agreement with the bondholders was reached on the terms of the restructuring.
As for Graimpi and Lion DRI, they have proposed to the respective banks to reschedule/restructure their repayments in respect of the MLF and the WCF respectively.
Lion Div said Excel, Graimpi and Lion DRI were not its major subsidiaries.
Based on its 2015 annual report, Lion Div had total borrowings of RM470.32mil for the year ended June 30, 2015 and cash and bank balances of RM311.6mil as of June 30.
The steel industry has been hit by excess capacity and most producers are recording loses.
The Lion Group is the biggest steel player with interest in long products that are used for the construction sector and owns Malaysia’s only flat steel plant, Megasteel Sdn Bhd.
However its monopoly in the flat steel segment has not helped to fortify the group’s finances.
The Lion Group has contended that although there were restrictions in imports, especially on flat steel products, there was still ample supply coming in from other countries. It had proposed high import duty, something that has not gone down well with the rest of the industry players.
