Sahaviriya Steel Industries PLC

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FAQs

Question: Why did the Company decide to liquidate the Upstream Business operated by Sahaviriya Steel Industries Limited (“SSI UK”) on 2 October 2015? And, how much the recoverable amount did the company expect after the completion of SSI UK liquidation?

Answer : Since Upstream Business started its slab production in 2012, it had continuously reduced costs and exported its products to all over the world. However, from Q4/2014 several factors such as severe over-capacity in the global steel market, China’s subsidy in steel export, abnormally weak Russian Rubles, and the economic slowdown in China and Russia, have led to the overwhelming volume of steel exports from both countries, which was all-time high. As a result, current slab prices have fallen by more than 40% compared with the average price of more than USD500 per ton in 2014. The price drop exceeded the 30% cost reduction achieved by Upstream Business, thus turning Upstream Business’s EBITDA to negative in the first half of 2015.

Such global steel over-capacity, demand imbalance, and the continuous decline in steel price situation have remained unchanged and on the other hand, further deteriorated and resulted in bigger losses at the Upstream Business. Consequently, SSI UK was required to temporarily suspend its steelmaking operation on 18 September 2015 and subsequently applied to the court for liquidation on 2 October 2015.

At present, the Company on a conservative basis expects zero recovery after the completion of SSI UK liquidation. As SSI UK’s main asset is a large iron and steel making plant, controlled under the Control of Major Accident Hazards regulation, there are uncertain external factors which are beyond the Company’s control, for instance the validity of the environmental permit, access and ability to safeguard the assets, etc. The legal and liquidation proceeding in this case is unprecedented and unclear to the Company at this stage. In the meantime, the Company is in discussion with legal advisors and the Major Creditors to determine further steps.

Question: Why did the Company file the petition for Business Rehabilitation?

Answer: Referring to the fact that SSI UK notified the temporary pause of slab production on 18 September 2015, the group of creditors of SSI UK, which are The Siam Commercial Bank Public Company Limited, Krungthai Bank Public Company Limited, and TISCO Bank Public Company Limited (collectively, the “Major Creditors”), demanded SSI UK to pay its obligations under the loan conditions due to some uncertainties from uncontrollable factors which could result in an uncertainty in operation recommencement of SSI UK. In addition, according to its financial position, SSI UK could not respond to the demand of the Major Creditors. Therefore, the Major Creditors requested the Company to be jointly responsible as a guarantor of SSI UK for the obligation amounting to USD 790 million or approximately Baht 28 million on 21 September 2015.

On 1 October 2015, additionally to SSI UK’s case, the Major Creditors demanded the Company to pay its obligation under the loan conditions amounting to Baht 23.9 billion, as the Company had liabilities exceeding its total assets.

As the Company discussed with the Major Creditors to obtain the solution for the HRC Business of the Company to be able to carry on operations as normal, including maintaining the Company’s business value, the Board of Directors deemed that the Company should enter into Business Rehabilitation for its debt restructuring. As a result, the Board of Directors approved the Company to submit a petition for Business Rehabilitation to the Central Bankruptcy Court (the “Court”) on 1 October 2015 and approved the Company to act as the Plan Preparer of the Business Rehabilitation. The Court already made an order accepting the petition of the Company as the black case No.For.23/2558 on the same date. The preliminary hearing of such petition was scheduled on 21 December 2015. It was appeared on such inquiring date that the litigants would prefer to prepare and bring the witnesses to testify on the Court proceedings. The Court, then, scheduled the next inquiring on 17 February 2016.

Question: What is the progress of the Company’s petition for Business Rehabilitation at the Court?

Answer: The Court has finished the inquiry on the petition on 17 February 2016 and issued the date for the Court’s order regarding the Company’s petition for Business Rehabilitation to be on 10 March 2016.

Question: What were the reasons for the disclaimer of opinion on Auditor’s Report on the Company’s financial statements for the year ended 31 December 2015?

Answer: The auditor submitted the Company’s financial statements for the year ended 31 December 2015, without expressing an opinion due to the following reasons:

(1) Limitation of Audit Scope

“Unable to carry out satisfactory audit procedures to conclude whether the recognition and presentation in the consolidated statement of income and disclosure in Note 8 relating to discontinued operations is prepared, in all material respects, in accordance with Thai Financial Reporting Standards.”

Clarification As SSI UK applied to the court for liquidation (The High Court of Justice Chancery Division Manchester District) in which it was approved and the court has appointed an Official Receiver to proceed in liquidation process on 2 October 2015, when SSI UK entered the liquidation process. Thereafter, SSI UK’s financial statements for Group consolidation purposes as at the date were prepared on a break-up basis. The Company presented the statement of financial position and its results according to the financial reporting standard. As for the statement of financial position and its result of discontinued operation whose audit scope was limited as stated by the auditor, the Company would like to clarify that because of the liquidation process as stated above, consequently, assets evaluation could not be performed as well as all financial information could not be accessed adequately. Nevertheless, the management of the Company has made an effort and discretion cautiously to prepare financial information for the purpose of presentation and disclosure of discontinued operations in the consolidated financial statements of income of the Group for the year ended 31 December 2015 based on SSI UK’s management accounts and related reports made up to 31 August 2015 and estimates for the remaining period to 2 October 2015, using all relevant information available to the Group to date including estimates of SSI UK’s Assets Held for Sale or Disposal.

The Company estimates the value of Assets Held for Sales or Disposal after deducting the expenses occurred during the liquidation and the contingent expenses concerning to safety and environmental related regulations, on a conservative basis, to be zero recovery after the completion of SSI UK liquidation. As SSI UK’s main asset is a large iron and steel making plant, controlled under the Control of Major Accident Hazards regulation, there are uncertain external factors which are beyond the Company’s control, for instance the validity of the environmental permit, access and ability to safeguard the assets, etc. The legal and liquidation proceeding in this case is unprecedented and unclear to the Company at this stage.

Notwithstanding, the Company believes that the consolidated and separate financial statements were prepared and presented in accordance with the financial reporting standards.

(2) Material uncertainty concerning going concern basis of accounting

Clarification Pursuant to the discontinuation of the subsidiary’s operations, the Major Creditors abruptly demanded SSI UK to pay the remaining balance of a loan carried at USD 815 million (equivalent to Baht 30,034 million as at 31 December 2015). Subsequently, the Major Creditors demanded the Company, as a guarantor, to be responsible of such amount. On 1 October 2015, the Major Creditors also demanded immediate payment of the remaining balance of the Company’s loan carried as at 31 December 2015, at Baht 9,840 million. In view of this situation, on 1 October 2015 the Board of Directors of the Company approved for the Company to submit an application for Business Rehabilitation to the court, who had accepted the application. The first inquiry date was scheduled on 21 December 2015, and the next inquiry date was scheduled on 17 February 2016. The Court has finished the inquiry on the petition on 17 February 2016 and issued the date for the Court’s order regarding the Company’s petition for Business Rehabilitation to be on 10 March 2016.

Although the success of the Business Rehabilitation depends on external factors (such as the measures taken to improve profitability, the successful outcome of the Company’s negotiation with its Major Creditors in debt restructuring, the availability of financing to meet funding requirements, the court judgement, etc.), the Company believes that the business is fundamentally viable. In the event that the approval of Business Rehabilitation has been granted, it will result in maximum benefit to the creditors and other stakeholders.

(3) Material uncertainty other than going concern

“As disclosed in Note 2 to the financial statements, on 1 October 2015, the Board of Directors of the Company approved the Company to submit a petition for Business Rehabilitation to the Central Bankruptcy Court. The Court scheduled the inquiry on the petition to testify on the court proceeding on 21 December 2015 and the next inquiry date will be on 17 February 2016. As at the date of this report, the Court’s examination and consideration to order the Company for Business Rehabilitation had not been concluded. Such circumstance indicates the existence of a material uncertainty as to whether the Court will accept the Company for Business Rehabilitation and thereby enable commencement of the Business Rehabilitation plan as planned. It also casts doubt about the classification and measurement of liabilities and provisions.”

Clarification Because of the Court’s inquiry is still in progress, the Company agrees with the auditor’s opinion that, as the Court’s examination and consideration to order the Company for Business Rehabilitation had not yet been concluded; therefore, there are material uncertainty concerning the acceptance of the Company’s Business Rehabilitation and commencement of the Business Rehabilitation plan as planned, including uncertainty concerning the classification and measurement of liabilities and provisions in either scenario after the Court’s decision whether the Company is approved to commence the Business Rehabilitation or not.

However, 1) the current status of the Company is under the criteria for entering Business Rehabilitation, as well as 2) the support has been given by the creditors for debt restructuring in relation to the ability to generate revenues which will help the business to continue, and 3) the Company believes that Business Rehabilitation will be result in debt repayment to the creditors and be beneficial to the stakeholders which is better than forced liquidation. The Company confides, based on the facts (No.1-3), that we will receive a fair trial from the court.

Question: What are valid current Trade Remedy Measures from the Ministry of Commerce? What are the details?

Answer: Trade Remedy Measures at the end of Q4/2015 are as follows:

Products Country of Origin Measures Duty Rate Status 1) Effective Period
HRC China, Malaysia Anti-dumping 30.91% - 42.51% Final 12 Aug 11 – 11 Aug 16
HRC
(with Boron added)
China Anti-dumping 14.28% - 19.47% Final 26 Dec 12 – 25 Dec 17
HRC Japan, South Africa, Russia, Kazakhstan, India, South Korea, Taiwan, Venezuela, Argentina, Ukraine, Algeria, Indonesia, Slovakia, Romania Anti-dumping 0% - 128.11% Final 23 May 15 – 22 May 20
HRC
(with other elements added)
All
(UN developing countries excluded, except Turkey)
Safeguard 44.20%
43.57%
42.95%
Final 15 Sep 13 – 26 Feb 14
27 Feb 14 – 26 Feb 15
27 Feb 15 – 26 Feb 16
(Submission for Extension on 9 Jun 15)
HRC
(without other elements added; thickness 0.9-50 mm and width 600-3,048 mm)
All
(UN developing countries excluded, except Brazil)
Safeguard 21.92%
21.52%
21.13%
Final 24 Dec 14 – 6 Jun 15
7 Jun 15 – 6 Jun 16
7 Jun 16 – 6 Jun 17
CRC China, Vietnam, Taiwan Anti-dumping 4.22% - 20.11% Final 6 Feb 14 – 5 Feb 19

1)According to Thai regulations, the two stages of AD and Safeguard are Provisional and Final Measure.   Provisional Measure may be imposed if there is clear evidence and a preliminary determination that increased imports have caused or are threatening to cause serious injury. After making the Final Determination that dumped imports are causing injury for AD or imports are causing serious injury for SG, the Final measures will be applied.

Question: What are the outlook for global steel industry and Thailand’s HRC market in Q1/2016?

Answer: The US economy tends to continue its growing resulted from the expansion of household consumption and the property market recovery. As a result, steel production volume in the U.S. is expected to slightly increase in Q1/2016. Meanwhile, the EU and Japan still continued their monetary policy to further boost their economies. Nevertheless, steel production volume in both regions is expected to remain stable in Q1/2016. In China, the steel demand in Q1/2016 is expected to continue to decrease from ongoing slowdown of Chinese economy causing the steel producers in China to encounter heavy losses and are under pressure to export the over-supply production or reduce output.

As for prices in Q1/2016, steel prices tend to continue to decrease due to continuous production overcapacity issue in China. In addition, the U.S. dollar tends to continue to appreciate as the Federal Reserve System (Fed) has raised interest rates in December 2015 and may raise the interest rates again in 2016. The strengthening U.S. dollar is another factor that could further pressure the commodity prices.

Domestic HRC Apparent Steel Supply (ASS) is expected to increase from 1,435k tons in Q4/2015 to 1,493k tons in Q1/2016 supported by the government’s infrastructure investment and domestic economic recovery.

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2nd - 3rd Floor, Prapawit Building, 28/1 Surasak Road, Silom, Bangrak, Bangkok 10500.

  • Tel : (662) 238-3063-82
  • Fax : (662) 236-8890, 236-8892

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9 Moo 7 Ban Klang Na - Yai Ploy Road, Mae Rumphueng, Bang Saphan, Prachuap Khirikhan 77140

  • Tel : (66-32) 691-403-5, 691-412-5, 691-419-20
  • Fax : (66-32) 691-416, 691-421

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