Pakistan Steel Mills (PSM) is likely to seek a third bailout package of Rs 6 billion to pay interest on loans of two previous bailout packages, well-informed sources told Business Recorder. This proposal was discussed at a meeting of Board of Directors held in the first week of current month wherein it was decided that the issue of payment of mark-up as decided earlier be taken up with Ministries of Production and Finance for resubmission to the ECC.
Chief Financial Officer Shahid Mohsin Shaikh, explained to the Board that a business plan was prepared for the financial year 2012-13 and presented to the Economic Reform Unit (ERU) on May 7, 2012. A bailout package worth Rs 14.6 billion for revival of PSM was approved in the Cabinet Committee on Restructuring (CCoR) on June 28, 2012 and subsequently in the ECC on July 24, 2012, allowing quarterly disbursement of tranches from the National Bank of Pakistan (NBP) to PSM as follows:
In July 2012, term loan was Rs 3.8 billion; mark-up Rs 300 million which makes the total Rs 4.1 billion which was disbursed on August 16, 2012. In October 2012 NBP loan stood at Rs 5.050 billion, mark-up Rs 300, total Rs 5.350 billion. In January 2013, PSM will get an instalment of Rs 2.6 billion and mark-up of Rs 400 million. In April 2013, PSM will receive an installment of Rs 2.15 billion.
This implies that PSM will receive net Rs 13.6 billion and Rs 1 billion will be deducted as mark-up in advance. The Board meeting of October 15, 2012 provided projections’ of cash flow for the year 2012-13 and the expected shortfall in operating cash flows as Rs 4.5 billion. The amount of mark-up on loans not covered under the bailout is expected to be Rs 2.4 billion, thus making the total shortfall after incorporation of bailout at Rs 6.9 billion.
Subsequently, PSM has been successful in establishing LC at a margin of 50 percent with deferral period of 120 days. Suppliers of coal have shown willingness to LC deferral period of 120 days, and the participant in iron ore tenders (M/s Cargil) has offered LC deferral period of 180 days.
As the shortfall had occurred in the earlier months of December and January where production level was expected at 45 percent, the deferral of raw materials payment helped PSM overcome this shortfall. Adequate stocks of required material can be procured and payment can be settled at a later stage when production level increases and therefore sales of revenues are higher.
Another factor included in managing the cash flow is the corporation’s contribution to gratuity fund and provident fund. Payments to employees will be arranged as it falls due on a month-to-month basis. This manner of settlement of employees’ dues has been in practice for more than three years. After incorporating this cash, PSM was able to overcome the shortfall in operating cash, previously shown as Rs 4.5 billion. The mark-up not covered under the bailout estimated at Rs 2.4 billion is to be taken up with Finance Division.