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PSM set to seek Rs five billion immediate equity injection




  • Pakistan Steel Mills (PSM) is to seek another financial package from the federal government including immediate equity injection of Rs 5 billion to restore supply chain, sources close to CEO told Business Recorder from Karachi. This package will be placed before the Board of Directors (BoD) which is scheduled to meet on Wednesday (tomorrow) under the chairmanship of Fazal Ullah Qureshi. 

    The sources said, PSM will request the government to facilitate opening of L/C of Rs 3 billion through National Bank of Pakistan (NBP) in favour of PSM which expired on December 31, 2012. This is non-funded facility. NBP should be advised to approve and allow PSM to use the L/C facility of Rs 3 billion immediately as the same had been available to PSM since January 2009, and renewed annually without the credit ceiling and LOC/guarantee by GoP. 

    “We are requesting immediate equity injection of Rs 5 billion to restore supply chain. We are also asking the government that payment of salaries of all employees for the period from January to December, 2013 should be borne by GoP @ Rs 850 million per month,” the sources added. 

    Regarding loan restructuring, the sources said that Rs 4.2 billion (consortium loan, part of the Rs 7.7 billion loan, the interest of which is being borne by GoP) instalment is due in June 2013 to be deferred for next 3 years. As Rs 3.5 billion were paid by PSM in FY08, which saved the mark-up of Rs 2.2 billion for 4 years on early payment of the principal. The deferment of principal of 3 annual instalments will cost Rs 1 billion to GoP. Hence, resulting in net saving to GoP of Rs 1.2 billion. 

    “We are requesting that the early payment of Rs 3.5 billion be considered as the payment of three instalments. The repayment of principal amount of Rs 4.2 billion will be rescheduled from June 2016 instead of June 2013. Loans amounting to Rs 8 billion and Rs 6.9 billion, the repayment period of 5 years starting from April 2014 may be rescheduled to the period of 10 years with principal repayments starting from April 2015,” the sources maintained. 

    PSM is further requesting that mark up for the first three years amounting to Rs 8.5 billion required for payments of immediate liabilities should be paid by GoP against issue of shares in line with business plan approved by ECC and agreed in principle by Prime Minister. 

    “Concessionary SROs giving extra ordinary advantage to importers and manufacturers may be withdrawn as requested by PSM and level playing field be provided to PSM at par with the other stakeholders,” the sources quoted, PSM as saying. Out of current liability to SSGC (Rs 11 billion), the GoP is being requested to pickup at least 50% on immediate basis. The surcharge approx Rs 3 billion may be waived off by SSGC. 

    In a meeting of Cabinet Committee on Restructuring (CCoR) on June 28, 2012 it was resolved to revitalise PSM and develop it into profitable entity. The sources said, out of Rs 3.80 billion PSM managed to open two L/Cs of coal and also arranged one L/C of iron ore from Big World. 

    The letter of Comfort for the second instalment of Rs 5.05 billion in favour of National Bank of Pakistan was issued by Finance Division on October 22, 2012 and all related formalities and approvals including enhancement of credit ceiling, concurrence of National Bank of Pakistan, term sheet by Finance Division in respect of term loan of Rs 5.05 billion, Board Resolution for availing the loan of Rs 5.05 billion were provided to National Bank of Pakistan by November 12, 2012. Disbursement of loan through National Bank of Pakistan was made on December 10, 2012. Twenty eight days taken by National Bank of Pakistan in disbursing the loan after all required approvals and documents were made part of the logistics planning of raw material procurement. 

    The L/C established on November 8, 2012 for import of 55,000 MT of Curragh Coal from Australia was delivered at Port Qasim on December 18, 2012. The long-term contracts for coal are adequate and Pakistan Steel Mill is able to procure the required quantities in order to meet its production needs .In addition to the 110,000 MT received in October, 55,000 MT from Australia was received on December 18, 2012, in anticipation of firing of COBP-I 

    The coal is sufficient at current production levels up to end March, 2013. The next L/C for coal is required by end February, 2013 to ensure delivery by first week of April, 2013. Tender finalised by BPC for 20,000 MT on F.O.R basis on November 20, 2012 and material was expected on December 22, 2012. A tender finalised of 10,000 MT through BPC on December 8, 2012 was expected to arrive by 10 January, 2013. Two tenders of 20,000 MT each had been finalised and material arrived by 20 January, 2012. 

    However, no shipment on F.O.R basis has arrived to date, and repeated promises of the supplier have failed. In view of the situation, BPC decided to cancel four contracts of 20,000 MT each all from the same supplier, on account of failure to deliver even a single contract. On C&F basis two Letter of Intent (LoI) were issued on December 13, 2012 for a total quantity of 110,000 MT of iron ore 55,000 MT from Australia of Newman Fines and 55,000 MT of vale brand of Brazil. 55,000 MT from M/s Cargill was not entertained by BPC which resulted in deficiency of iron ore lump and consequently prices have gone high. 

    The contract for Newman Fine has been signed with M/s Cargill of Singapore and L/C established. Delivery is expected by 20 February 2013. The contract with M/s Swiss Singapore for 55,000 MT of vale brand Iron Ore of Brazil has been finalised, waiting for opening of LC. 

    A LoI for 55,000 MT of iron ore has been issued to M/s Cargill on 19 January, 2013. The contract has been signed on 8th February, 2013 and Iron Ore delivery process starts after opening of LC by PSM. Commercial offer of M/s Cargill International Trading for 55,000MT fine iron ore has been opened on February 14, 2013. Thus cumulatively more than 200,000MT of fine Iron ore supply has been ensured. This is excluding F.O.R/DDP and local iron ore supply. Supply of iron ore lump from Iran through existing long-term contract is also being vigorously perused with likely positive results. We are going to make payment in local currency through order cheque. PSM claims it has already obtained clearance from CFO-PSM, External Auditors (ex-CFO has obtained concurrence from external auditor as minuted by him) and Board Price Committee. The tender for 7th Generation (5 years long-term) will be opened on 21 February, 2013 and processed. 

    PSM is of the view that on the circumstances as explained above, it could not enhance its capacity due to the following reason: (i) iron ore is a basic raw material required for steel products. PSM had long-term contracts with Iranian ore suppliers. As the first tranche of bailout package of Rs 3.8 billion received in mid August 2012 due to US sanctions on Iran no bank was ready to establish L/C in favour of Iranian suppliers. Further no payment can be made in Iran through banking channel. It would not be out of place to mention that Iranian supplier has shown their willingness to supply iron ore against long term contracts provided some payment mechanism is finalised to the satisfaction of iron ore supplier;(ii) PSM has also taken up this issue with various banks of the country including seeking guidance from SBP but the same could not bring the desired results. 

    Had the sanctions not been imposed on Iran the process of PSM revival would have been started in October 2012 by using first bailout tranche of Rs 3.8 billion, which could be supplemented and strengthened by second tranche of Rs 5.05 billion received in mid December, 2012. 

    (iii) PSM even tried to procure iron ore on delivered duty paid (DDP) basis but the supplier fail to deliver the material in spite of number of incentive extended by the corporation;(iv) non-availability of iron ore in time;(v) non performance of M/s. BWT in end October 2012 and L/C against 3 iron ore contracts could not be opened due to non-availability of funds; (vi) release of first tranche on August 16, 2012 took two months to materialise in terms of raw material similarly the second tranche made available on December 10, 2012 also was converted into logistics supply in two months; (vii) L/C facility of Rs 3 billion not renewed by NBP, which was available for the last 3 years without GoP guarantee and credit ceiling of PSE has been denied with effect from January 1, 2013 and ;(viii) the first L/C M/s. Cargil which was opened on 50 percent margin by Bank Al-Habib opened L/C at 100 percent margin because of the situation in Islamabad on that date. Due to this PSM was not in position to open 2nd L/C on 50 percent margin as planned. 

    Copyright Business Recorder, 2013

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