No worries over SSI, says SCB

Economy November 23, 2012 00:00

By Sucheera Pinijparakarn

The

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Siam Commercial Bank (SCB) says there is no need for it to make extra provisions to cover Sahaviriya Steel Industries because the bank's coverage ratio is higher than 100 per cent. However, the bank is concerned about the company's ability to find new mar



Krungthai Bank (KTB), one of the major lenders to SSI, is under risk because its coverage ratio is 71-72 per cent. Analysts say KTB needs to increase loan-loss provision.

SSI earlier announced plans to raise Bt13 billion in new capital by issuing 19.43 billion new shares at an offer price of Bt0.68 via rights offering to existing shareholders and private placement for Vanomet, new investors and two Japanese partners. The new funds will be used to repay some short-term debt, repurchase convertible debentures, and to provide working capital for SSI in the UK.

SCB, which is both lead lender and financial adviser to SSI, noted that the bank had suggested to SSI to increase more capital than it is likely to need. Though SSI has raised Bt1.73 billion, the amount is sufficient to repay debt to suppliers, said Arthid Nanthawithaya, senior executive vice president of SCB.

SSI has one year to sell the remaining shares, which the bank believes SSI’s new partners – the two Japanese investors, and one from Europe – and existing shareholders would support, he said.

"We are only worried about the new markets that require the high-grade steel because SSI is shifting its focus to high-grade steel and adjusting production technologies to net a higher margin. The production process will be completed by next February. However, the normal-grade steel prices are increasing a lot. We have to closely monitor the price of steel again," he said.

He added that after raising funds, SSI’s cash flow will improve and the plan to adjust production technology would help boost the margin.

SSI is planning to increase production capacity to 10,000 tonnes from 8,000 tonnes, hence the company has to find markets that require both high-grade steel and serve the new capacity.

SSI sales in the domestic market accounts for 70 per cent but margin from sale of steel in Thailand is lower than sales abroad because the demand is not for high-grade steel.

"Steelmakers face challenges from the global economy that is pressuring steel prices, and the demand is unclear. However, banks should support them because steel is a backbone industry. SSI is determined to explore all options to improve its debt structure and business. Therefore, we should give an opportunity to our client," he said.