Lion Group seeks to house all steel ops under LICB

THE biggest steel manufacturer in the country, which is the Lion Group, has embarked on its own steel consolidation exercise.

The group, which fell under the weight of debt that saw several of its listed companies being taken off Bursa Malaysia in the last few years, is in the process of putting its flat steel plant – Megasteel Sdn Bhd – into Lion Industries Corp Bhd (LICB).

The corporate exercise that was mooted in July last year needs the approval of secured and unsecured lenders and Tenaga Nasional Bhd. If approved, it would see LICB housing both the long and flat steel plant operations of the Lion Group.

At the moment, LICB has three plants producing long products and billets and a plant that produces hot briquetted iron (HBI) which is the raw material for high purity steel. The long products that are produced from two plants in Selangor and another in Pasir Gudang are mainly used in the construction sector.

If LICB manages to get the approval of creditors to takeover Megasteel, it would be a complete steel products manufacturer having facilities in both long and flat products. The company is proposing to buy over the assets from the secured and unsecured creditors for Rm603mil and pay Tenaga Nasional Rm35.8mil for it to resume the supply of electricity.

The plant, which has a capacity of producing 3.2 million tonnes of hot rolled coil and 700,000 of cold rolled coils has been shut down since March 2016. LICB had said in its previous announcement that it would cost Rm35mil to resume operations.

Analyst describes the transaction as a herculean task for LICB as creditors have been holding to the debts for more than 10 years.

“But if no solution is found soon, the plant will continue to deteriorate,” says the analyst.

Previously the Lion group stretched its assets over several listed companies. Each of the listed companies carried separate debts. Now, all the steel producing operations will be under LICB if creditors approve the deal.

“It is a consolidation within the Lion group. It will help with the huge working capital required to operate Megasteel. The way forward is to put all steel operations under one roof to optimise cash flow,” he said.

Megasteel was the pride of the Lion group and its founder, Tan Sri William Cheng. He completed building the flat steel plant at the height of the 1998 financial crisis at a cost of almost Rm2bil. He had some form of protection as the government slapped high duties on imports of flat steel. However, competition was tough and it faced financial constraints in running the operations.

The Lion Group always contended that imported flat steel found its way into the domestic market, which the other steel players refuted.

Cheng is still a major shareholder in LICB, which is why the Megasteel transaction needs to go through shareholders. However, Cheng is not on the board of LICB. His daughter Serena sits on the board of LICB that is run by his nephew Tan Sri Cheng Yong Kim.

The 68-year old Yong Kim has been managing LCIB since 1996.

Apart from the three plants that produce long products and the HBI plant in Labuan, LICB is also into supply of building materials and property development.

In the 2017 and 2018, LICB registered profits driven largely by the strong performance of its steel mill segment.

However, for the first six months of this until the period end June 2019, LICB is in a loss position due to poor set of results in the latest quarter.

In the second quarter, LICB registered a loss of Rm43.3mil on the back of a turnover of RM798.1 mil. The results dragged the group into the red for the first six months this year to the tune of Rm24.4mil on a revenue of Rm798mil.

LICB had stated that the operating environment of the steel industry is anticipated to remain challenging in the next quarter in view of the intense competition among the local steel millers, the volatile prices of steel products and raw materials.

Hence, adding Megasteel to its stable of steel companies would add on to the challenges of LICB.

LICB is sitting on a net cash position of Rm145mil as of June this year. However, the money would dwindle fast if the proposed purchase of Megasteel takes place. The consolation is that the company would be acquiring the flat steel plant at about 25% of its original price incurred to build the plant.