KUALA LUMPUR: Some interesting shareholding changes could be in the offing at Lion Corp Bhd, the steel manufacturing arm of the Lion Group helmed by Tan Sri William Cheng Heng Jem.
Last Friday, 543 million shares, representing almost 28.6% equity interest in Lion Corp, crossed in three large blocks of 349 million shares, 105 million shares and 89 million shares, at 21 sen apiece or about RM114 million.
Interestingly, Bloomberg recorded the transactions slightly after 5pm, when the market closed.
It appears then, that the off-market transactions may have been timed to avoid affecting the share price or speculation in Lion Corp shares during trading hours, or that it may have been a rushed transaction. The transactions were also timed just ahead of an announcement of a major debt settlement scheme the same evening.
Lion Corp closed last Friday unchanged at 19 sen, meaning the sale was at a slight premium of 10%.
While some were speculating on the entry of a foreign party into Lion Corp, others brushed it aside as possibly the transfer of shares by one entity to another by controlling shareholder Cheng.
A market observer noted that internal restructuring has been a common feature within the Lion Group in the past, as the group sought to streamline its diversified businesses, pare down debts and remove cross-shareholding structures.
As at end-October this year, Cheng had control over slightly more than 77% of Lion Corp shares and was the only substantial shareholder in the company. This also means that no other party could have sold such a big block of shares in Lion Corp.
Senior personnel of Lion did not comment, with some saying they were not aware of what was happening.
Market watchers speculate that a Chinese party is entering into Lion Corp, possibly to assist in its main asset, Megasteel Sdn Bhd, the country’s only integrated flat steel mill, producing hot rolled and cold rolled coils.
According to Lion Corp’s annual report, it has almost 79% equity interest in Megasteel, via its wholly owned unit Limpahjaya Sdn Bhd, while an additional 21% is held by Lion Diversified Holdings Bhd, another company controlled by Cheng.
News reports have linked Cheng with Chinese giants Baosteel Group Corp and with Taiwan-based China Steel Corp (CSC), looking to take over some of his assets, largely to assist Megasteel, but there has been little news lately.
Megasteel has been plagued with high borrowings. For its FY10 ended June, Megasteel posted a profit after tax of RM98.04 million from RM3.53 billion in revenue. However, the company had negative reserves amounting to RM146.56 million.
The company had non-current assets amounting to RM2.8 billion and current assets worth RM1.71 billion. On the other side of the balance sheet, it had current liabilities amounting to RM3.28 billion while its non-current liabilities stood at RM785.41 million.
According to its website, Megasteel was set up at a cost of RM3.2 billion in Banting, Selangor, which could explain the high debt levels. It has an electric arc furnace utilising scrap iron and hot briquetted iron with an annual production capacity of 3.2 million tonnes.
Part of Cheng’s grand plan includes the setting up of a blast furnace, which will considerably reduce his operating costs, produce higher quality steel, and make Megasteel a viable business.
However, the cost of setting up a blast furnace, which Lion began in 2008 and is still being built in Banting, Selangor, is estimated to be around US$1 billion (RM3.13 billion).
Hence Cheng’s need for a foreign party to come in, as the funds obtained are likely to be ploughed back into Megasteel for the blast furnace. Other than Megasteel, other steel assets under the Lion group include the flagship Amsteel Mills Sdn Bhd, Antara Steel Mills Sdn Bhd which operates in Pasir Gudang, Johor, Bright Steel Sdn Bhd as well as a hot briquetted iron plant in Labuan.
Amsteel Mills, Antara and Bright Steel all focus on long steel products, generally used in construction.
Cheng and Megasteel have also been at loggerheads with downstream steel players.
Earlier this year Megasteel’s petition for the government to impose an additional 35% duty on imported hot rolled coil, over and above the existing duty of 25%, thus making the import tax on hot rolled coil steel 60%, was quashed.
This new import duty, if imposed, would have worked as a protection mechanism for Megasteel, the only flat steel producer in the country.
The current deal is that downstream industry players are required to acquire their flat steel products from Megasteel, and can only source elsewhere or import if the required items are not manufactured by Megasteel.
Early last month, The Edge Financial Daily reported that Megasteel had petitioned the government to impose a 15% import tariff on all flat steel products, a move that the downstream players opposed.
Interestingly enough, last Friday night, Lion Corp announced a proposal to issue up to 950 million of RM1 par value shares, as part of a proposed debt settlement scheme, as well as a capital reconstruction exercise.
The company explained that the RM950 million was specifically for Megasteel’s creditors, who would receive shares in Lion Corp, on a basis of 20 sen for every RM1 owed.
This article appeared in The Edge Financial Daily, December 5, 2011.
Last Friday, 543 million shares, representing almost 28.6% equity interest in Lion Corp, crossed in three large blocks of 349 million shares, 105 million shares and 89 million shares, at 21 sen apiece or about RM114 million.
Interestingly, Bloomberg recorded the transactions slightly after 5pm, when the market closed.
It appears then, that the off-market transactions may have been timed to avoid affecting the share price or speculation in Lion Corp shares during trading hours, or that it may have been a rushed transaction. The transactions were also timed just ahead of an announcement of a major debt settlement scheme the same evening.
Lion Corp closed last Friday unchanged at 19 sen, meaning the sale was at a slight premium of 10%.
While some were speculating on the entry of a foreign party into Lion Corp, others brushed it aside as possibly the transfer of shares by one entity to another by controlling shareholder Cheng.
A market observer noted that internal restructuring has been a common feature within the Lion Group in the past, as the group sought to streamline its diversified businesses, pare down debts and remove cross-shareholding structures.
Malaysia's only flat steel producer, Megasteel was set up at a cost of RM3.2 billion, which could explain its high debt levels.
As at end-October this year, Cheng had control over slightly more than 77% of Lion Corp shares and was the only substantial shareholder in the company. This also means that no other party could have sold such a big block of shares in Lion Corp.
Senior personnel of Lion did not comment, with some saying they were not aware of what was happening.
Market watchers speculate that a Chinese party is entering into Lion Corp, possibly to assist in its main asset, Megasteel Sdn Bhd, the country’s only integrated flat steel mill, producing hot rolled and cold rolled coils.
According to Lion Corp’s annual report, it has almost 79% equity interest in Megasteel, via its wholly owned unit Limpahjaya Sdn Bhd, while an additional 21% is held by Lion Diversified Holdings Bhd, another company controlled by Cheng.
News reports have linked Cheng with Chinese giants Baosteel Group Corp and with Taiwan-based China Steel Corp (CSC), looking to take over some of his assets, largely to assist Megasteel, but there has been little news lately.
Megasteel has been plagued with high borrowings. For its FY10 ended June, Megasteel posted a profit after tax of RM98.04 million from RM3.53 billion in revenue. However, the company had negative reserves amounting to RM146.56 million.
The company had non-current assets amounting to RM2.8 billion and current assets worth RM1.71 billion. On the other side of the balance sheet, it had current liabilities amounting to RM3.28 billion while its non-current liabilities stood at RM785.41 million.
According to its website, Megasteel was set up at a cost of RM3.2 billion in Banting, Selangor, which could explain the high debt levels. It has an electric arc furnace utilising scrap iron and hot briquetted iron with an annual production capacity of 3.2 million tonnes.
Part of Cheng’s grand plan includes the setting up of a blast furnace, which will considerably reduce his operating costs, produce higher quality steel, and make Megasteel a viable business.
However, the cost of setting up a blast furnace, which Lion began in 2008 and is still being built in Banting, Selangor, is estimated to be around US$1 billion (RM3.13 billion).
Hence Cheng’s need for a foreign party to come in, as the funds obtained are likely to be ploughed back into Megasteel for the blast furnace. Other than Megasteel, other steel assets under the Lion group include the flagship Amsteel Mills Sdn Bhd, Antara Steel Mills Sdn Bhd which operates in Pasir Gudang, Johor, Bright Steel Sdn Bhd as well as a hot briquetted iron plant in Labuan.
Amsteel Mills, Antara and Bright Steel all focus on long steel products, generally used in construction.
Cheng and Megasteel have also been at loggerheads with downstream steel players.
Earlier this year Megasteel’s petition for the government to impose an additional 35% duty on imported hot rolled coil, over and above the existing duty of 25%, thus making the import tax on hot rolled coil steel 60%, was quashed.
This new import duty, if imposed, would have worked as a protection mechanism for Megasteel, the only flat steel producer in the country.
The current deal is that downstream industry players are required to acquire their flat steel products from Megasteel, and can only source elsewhere or import if the required items are not manufactured by Megasteel.
Early last month, The Edge Financial Daily reported that Megasteel had petitioned the government to impose a 15% import tariff on all flat steel products, a move that the downstream players opposed.
Interestingly enough, last Friday night, Lion Corp announced a proposal to issue up to 950 million of RM1 par value shares, as part of a proposed debt settlement scheme, as well as a capital reconstruction exercise.
The company explained that the RM950 million was specifically for Megasteel’s creditors, who would receive shares in Lion Corp, on a basis of 20 sen for every RM1 owed.
This article appeared in The Edge Financial Daily, December 5, 2011.
