Three major creditors of Sahaviriya Steel Industries Plc (SSI), Thailand's largest maker of hot-rolled coil, are likely to reject a request to reschedule a 28-billion-baht debt repayment due on Sept 30, narrowing its chances to keep from being delisted from the Stock Exchange of Thailand.
SSI has suffered hefty losses driven by the poor performance of British subsidiary SSI UK Ltd, which operates a plant the group acquired in 2011.
The Thai steel maker posted consolidated net losses of 3.24 billion baht for the second quarter and 6.26 billion baht for the first half, with negative shareholders' equity of 1.78 billion.
The negative shareholders' equity poses the risk of SSI moving to the non-performing group. If the equity remains in the red through the end of the year, it will necessitate a rehabilitation plan.
SSI has temporarily ceased operations at its loss-making steel plant in England, and selling the facility is one option to turn around the ailing steel maker, SSI president Win Viriyaprapaikit said.
Analysts previously said SSI had no hope to survive despite healthy Thai operations, given the dire situation of its English subsidiary.
The temporary suspension of the foreign plant has prompted three major creditors to call for SSI to repay debt totalling US$790 million or 28.3 billion baht.
SSI and SSI UK have borrowed a combined 48.4 billion baht from three lenders -- Krungthai Bank (KTB), Siam Commercial Bank (SCB) and Tisco Bank. KTB and SCB lent 22 billion baht each and Tisco 4.4 billion.
Tisco Financial Group, the holding company of Tisco Bank, yesterday said the bank would not reschedule the company's debt payment from the end of this month to December.
Instead, if SSI fails to repay the debt as scheduled, the bank will ask for a debt default, write it off and classify the company as a non-performing loan (NPL) eligible for the restructuring process.
"We should split SSI's business between Thai operations and Britain and transfer the British debt to the parent company," said Oranuch Apisaksirikul, Tisco Financial Group's president. "The positive performance and cash flow of the parent would help to support the capability of the company to succeed in its new debt-restructuring plan."
In terms of the effect on the banks, all three have continued to set aside full provisions for loan losses in the third quarter. Tisco has set aside a 100% reserve for its lending to SSI UK.
Tisco does not need a 100% reserve for SSI Thailand due to covered-debt collateral.
KTB president Vorapak Thanyawong said his bank would also classify SSI as an NPL and enter debt restructuring. The bank has a loan-loss reserve of 12 billion baht for the group.
The plan is to set an additional 9-billion-baht provision under Bank of Thailand regulations. KTB's coverage ratio is expected to decline to 90% from 120%, although it would increase the ratio to more than 100% later.
"This case will increase the bank's gross NPLs to 3.5% from 2%, which will in turn affect our profitability this year compared with last year," Mr Vorapak said.
SCB chief executive Arthid Nantawittaya said his bank would hold off on SSI's debt classification until the repayment due date.
Mr Win said SSI UK halted operations last Friday to negotiate with the British government, trade partners and labour unions in the hope of ultimately resuming work.
The parent company has been in talks with investors to sell them the plant, but nothing has been finalised, he said.
The SET has suspended trading in SSI shares at 10 satang apiece.
EARLIER REPORT
Sahaviriya Steel Industries Plc (SSI) will restructure debts totalling 50 billion baht with three Thai banks after shutting down production at its UK unit.
Group CEO Win Viriyaprapaikit said the company had temporarily halted slab production at its Teeside factory, run by subsidiary Sahaviriya Steel Industries UK (SSI UK) on Friday, pending talks with the UK government and stakeholders including unions and trade partners.
The negotiations focus on how to trim production costs and losses at the plant.
"The suspension will affect our external sales, which made up 52% of total sales in the first half of 2015. It won't hurt our hot-rolled steel production, which still has an inventory of slabs. We can also buy slabs cheaply in the market," said Mr Win at a briefing on Monday.
The world steel market has been hard hit by oversupply since the fourth quarter of 2014. China's steel export subsidies, Russia's depreciating ruble and the economic slowdown in the two countries have encouraged them to export more, he said.
"Slab prices fell by 40% from $500 a tonne on average in 2014 while production cost could be cut by 30%. That explained our losses in the first half of 2015," Mr Win said.
SSI reported a loss of 3.24 billion baht in the second quarter of 2015 compared to a loss of 1.4 billion in the same period last year.
From January to June, its losses widened to 6.26 billion baht from 2.8 billion baht year-on-year.
As SSI UK failed to repay its debts, the major creditors of the subsidiary — Siam Commercial Bank (SCB), Krungthai Bank (KTB) and Tisco Bank — asked SSI, the parent company and guarantor of the loans, to shoulder the debt burden worth $790 million (28 billion baht).
SSI's outstanding debts with SCB and KTB stood at 22 billion baht each while those with Tisco amounted to 4.4 billion baht.
The three banks have already set aside allowances for the loans in full, SSI said in a statement on Monday.
The Stock Exchange of Thailand suspended trade of SSI shares on Monday pending the announcement. They last traded on Friday at 0.10 baht, down 9.09%, in trade worth 6.88 million baht.
Also on the SET on Monday, SCB shares dropped 2.08% to 141 baht while KTB sank 2.2% to 17.80 baht and TISCO fell 0.68% to 36.50 baht.