Steel Sector In Distress by Sage 3 Capital
Agenda 1. Increasing Distress in PLC and Private Companies 2. Restructuring The Way Forward 3. Some Thoughts on Dealing with Distress
Distress in PLC • Large amount of capital at risk - PLCs Analysed by Segment and Duration in Segment RM24 billion • Most of PLCs in the sector show signs of distress • Prima facie they cannot act on white knights (i.e. mergers are difficult) • Financing is a challenge for business purposes, more so for take over • Cross border mergers are possible but challenged with opacity, no track record of M&A with regard to distress
Z'' Score for private steel companies (Pipes, Tubes & Fittings Products) - MISIF 50 Declining no. of No. of companies companies in Increasing companies with greater Safe Zone Distress in Private Companies likelihood of default 0 2007 2008 2009 2010 2011 2012 2013 2014 FY Distress Zone No info Grey Zone Safe Zone • Show similar patterns as Z’’ Score for private steel companies (Flat & Long Products) - MISIF 20 No. of companies Declining companies in Safe Zone • Flat steel 10 • Long products Likelihood of default increases 0 2007 2008 2009 2010 2011 2012 2013 2014 FY • Increasing trend of distress Distress Zone No info Grey Zone Safe Zone Pending info Z'' score for private steel companies • Financing becomes more challenging (Secondary Steel Sheet Products) - MISIF 10 No. of companies 5 Likelihood of default increases 0 2007 2008 2009 2010 2011 2012 2013 2014 FY Distress Zone Pending info Grey Zone Safe Zone Z'' Score for private steel companies (Members of MSA) 8 No. of companies Declining companies in Safe Zone 6 4 Likelihood of 2 default increases 0 2007 2008 2009 2010 2011 2012 2013 2014 FY Distress Zone Pending info Grey Zone Safe Zone
Restructuring The Way Forward Relevance of viability Source: Danaharta Annual Report 2005 Borrower exits Collaboration: Where Borrower is involved & Borrower/White Knight inherent viability Is it possible to improve the outcome by applying/encouraging the factors that support resolution of distressed PLCs portfolios, in particular with new monies?
Entrepreneur in Preserving Value Why Entrepreneur involvement is so key ? Why Entrepreneur involvement is so key ? Liquidation invariably leads to Liquidation invariably leads to destruction of value: destruction of value: • Plays key role in maintaining viability • Plays key role in maintaining viability • Destruction of viability inevitable • Destruction of viability inevitable (EBITDA +ve) (EBITDA +ve) • Has invested and risked their capital (+ • Has invested and risked their capital (+ • Assets are likely to be sold piece-meal due • Assets are likely to be sold piece-meal due other people’s money) in pursuit of profit other people’s money) in pursuit of profit to possible varying charges thus driving to possible varying charges thus driving down value of each individual asset down value of each individual asset • Possesses institutional knowledge • Possesses institutional knowledge • Business cannot be sold as a going concern • Business cannot be sold as a going concern • Imbued with ambition, self-belief, passion • Imbued with ambition, self-belief, passion and energy to secure business success and energy to secure business success • Concessions will be excluded • Concessions will be excluded • Benefits of tax losses eliminated • Benefits of tax losses eliminated • Most capable of raising new monies • Most capable of raising new monies • Leveraging on entrepreneur’s hunger, • Leveraging on entrepreneur’s hunger, • Host of licenses may need to be • Host of licenses may need to be business acumen & experience is business acumen & experience is surrendered surrendered unquestionably a critical success factor in unquestionably a critical success factor in • Loss of franchise + goodwill • Loss of franchise + goodwill debt restructuring debt restructuring • Loss of relationship with existing • Loss of relationship with existing customers + suppliers customers + suppliers
Some Thoughts on Dealing with Distress Crisis Management • Do not wait till the • Present offer to Bondholders last moment • Issue of undue preference Default • Announcement On SGX/Bursa • Set aside funds for • Announcement to Bursa re PN17 restructuring effort Cross • Monitoring Accountant Default • Get professional • Underlying viability • S176 initiation, invoking the RO advice Critical Action mechanism Points • Meeting “friendly” Bondholders • Do not get into situation where • Application process initiated operations have • Council meeting What needs to be CDRC ceased considered and • Sage 3 has been assisting addressed ? • Still not singing from the same Communication - “song sheet” critical now • For prompt decision making Board Management Committee
Thank You!
Recommend
More recommend
