- As at 30 September 2016, Axiata has an unhedged USD loan of 53% or USD1.4bn. We estimate that USD debt accounts for about 50% of Axiata's total borrowing. We believe Axiata would eventually pare down some of its stakes in overseas operating units in order to raise funds to further reduce its high gearing ratio.
It warned that its performance in financial year 2017 (FY17) will be affected by a weaker ringgit and foreign exchange losses should the ringgit slump to as much as 5 against the US dollar.
The group, which narrowed its losses in the first quarter ended Oct 31, 2017 (1QFY17), would have returned to black in the quarter under review if not for a foreign exchange (forex) loss at Eastern Steel Sdn Bhd.
Eastern Steel, Hiap Teck’s 55%-owned joint-controlled entity with Orient Steel Investment Co Ltd (40%) and Chinaco Investment Pte Ltd (5%), was the only loss-making item in the group during the period.
Production at the steel firm has been suspended due to depressed prices for its products and the continued weakness of the local note against the greenback till Dec 2016.
The forex loss stemmed from Eastern Steel’s US dollar-denominated shareholders’ loan. Eastern Steel is financed entirely by shareholders. Eastern Steel doesn’t borrow money but Eastern Steel itself has a US dollar loan from shareholders. When shareholders funded Eastern Steel, the foreign shareholder, Shougang (Shougang International [Singapore] Pte Ltd) lent in US dollar.
Orient Steel is the wholly-owned subsidiary of Shougang, which is also a substantial shareholder in Hiap Teck.
Weak ringgit concerns aside, Eastern Steel will be able to resume production of steel slabs following an agreement with An Steel International Co Ltd (Ansteel), one of the top five largest steel mills in China. Production was first suspended in October 2015.
The agreement will see Ansteel taking over Orient Steel’s entire stake in Eastern Steel, together with a shareholder loan provided to Eastern Steel, and any issuance of additional shares Orient Steel would have been entitled to.
The proposed transaction is expected to be completed by the first quarter of 2017, which will see Ansteel emerging as the largest stakeholder in Eastern Steel with a 50% stake, while Hiap Teck’s holdings will be reduced to 45.83%. Chinaco’s stake will be trimmed to 4.17%.
Besides production revival which will take place by the first half of 2017, Eastern Steel aims to expand further downstream into higher margin products.
Its immediate priority is to restart Eastern Steel’s production and to turn around the company as other parts of its operations are profitable.
In 1QFY17, the group’s net loss narrowed to RM958,000 from RM37.2 million a year ago, though revenue slipped 12% to RM279.1 million from RM317.4 million, as it saw improved margins and a lower share of losses from its stake in a jointly-controlled entity of RM25.2 million.
UMALACCA ALSO HAVE USD DEBT