THE Corporate Debt Restructuring Committee (CDRC) has probably only got one client – Megasteel Sdn Bhd.
The subsidiary of Tan Sri William Cheng’s Lion Corp Bhd, Megasteel is the country’s only integrated flat-steel mill producing hot and cold-rolled coils.
It seems that the CDRC has been recovened simply to serve this one particular client.
Lion Corp has a 79% stake in Megasteel while the remainder is held by Lion Diversified Holdings Bhd, which Cheng has a 49% direct and indirect stake in.
Megasteel came under fire from its fellow peers when it proposed high import duties.
On CDRC’s website is an announcement header that reads: “CDRC shall cease accepting new applications for admission effective May 2, 2013”.
Also in its code of conduct, CDRC stated that all ongoing restructuring cases shall be completed by Sept 30, 2013 by which time it would be dissolved.
However, in Lion Corp’s recently released annual report for the financial year ending June 30, 2015, it is implied that the company has been in consistent contact with CDRC in relation to Megasteel’s debt woes.
It stated that Megasteel intends to engage both CDRC and the lenders in further discussions and negotiations on the terms of the proposed restructuring scheme. In September, Megasteel announced a default of its facilities.
In 2015, its extended its losses to RM615.92mil on lower revenue of RM1.907bil. Its total liabilities stood at RM4.318bil while total assets were RM2.772bil.
According to its website, CDRC was successful in resolving 57 cases with debt outstanding amounting to RM45.8bil.
The committee was previously headed by Tan Sri C. Rajandram when it was formed by Bank Negara in 1998 during the height of the 1997/1998 Asian financial crisis. At the time, he was the executive director and chief executive officer of the Rating Agency of Malaysia.
It is not known who heads the committee now. Megasteel, meanwhile, was also not available for comments.
The committee was initially established for corporate borrowers and their creditors to work out feasible debt resolutions without resorting to legal action.
In the annual report, Lion Corp said the CDRC was previously facilitating the restructuring of the Megasteel banking facilities and on Dec 20, 2012, a letter was issued to the company’s lenders informing them that Megasteel’s admission to CDRC had been approved.
Lenders were required to observe an informal standstill pending completion of the proposed restructuring scheme.
On March 28, 2013, CDRC chaired a meeting during which Megasteel rolled-out a preliminary term sheet to its lenders, outlining the principal terms and conditions of the scheme, which was subsequently sent out more than a year later on July 14, 2014.
Then, on Nov 20, 2014, well after the CDRC’s “dissolvement” date, Megasteel sent out a revised term sheet to the lenders, outlining the principal terms and conditions of the proposed restructuring scheme.
The scheme, which was expected to be completed by Dec 31, 2014, involved the moratorium period granted in respect of the repayment of the principal amount outstanding up to Sept 30, 2017, among others.
Also, if Megasteel achieves an adjusted profit after tax exceeding the projected profit after tax in any financial year, 50% of that profit will leave the lenders entitled to an additional interest payment of up to 1% per annum; and the balance will be used to repay the principal amount owing under the term loans on a pro-rata basis.
“Megasteel has obtained consent from all its ringgit-term loan lenders as at the date of the financial statements (some of which are with certain conditions). However, only two out of the seven US dollar term-loan lenders have given their consent while one has commenced legal proceedings,” it said in the annual report.
The CDRC was set up in 1998 along with two other agencies, Pengurusan Danaharta Nasional Bhd and Danamodal Nasional Bhd, to rescue and restructure the domestic banking sector.
Danamodal was subsequently dissolved while Danaharta is now better known as Prokhas Sdn Bhd, the in-house restructuring outfit of the Finance Ministry. Prokhas was set up in 2005 to take over the role of Danaharta.
Meanwhile, the CDRC remained dormant until Bank Negara decided to give it a second breath of life in 2009 to take care of corporate debts. The central bank appointed Datuk Seri Abdul Hamidy Hafiz as chairman.
The committee comprises members from Bank Negara, the Securities Commission as well as the legal and banking fraternities.
Companies requiring assistance from CDRC have to submit an application. If approved, the CDRC will play the role of mediator between the companies and their lenders and come up with a viable debt restructuring arrangement.
The application criteria includes having an aggregate debt of RM30mil or more, and have at least two financial creditors. Also, the company should not be in receivership or liquidation.
Also eligible are companies listed on Bursa Malaysia classified as PN17 or GN3.
A PN17 company is one that is in financial distress. Companies that fall within this status will need to submit their proposal to the approving authority to restructure and revive it in order to maintain their listing status.
GN3 is triggered when a company reports poor and adverse financial condition and level of operations.
“An administrative fee is payable upon the successful implementation of the debt restructuring scheme and there shall be no fees payable to the CDRC in the event that the scheme is aborted unless such abortion is deliberate,” it said.
According to CRDC, in all cases, companies would be viable as a going concern post-restructuring.
