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NEWS UPDATES Asean Affairs        28  March 2011

Heavy debts put deal at risk

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ArcelorMittal's plan to buy into G Steel Plc might falter and the local steelmaker will be forced to delist from the Stock Exchange of Thailand because of the pending restructuring of US$950 million in debts.

G Steel chief executive Ahab Garas said the majority of the remaining outstanding debt is owed to overseas suppliers. They have so far reacted positively to negotiations but the clock is ticking as management tries to complete an agreement before the shareholders' meeting scheduled on April 27.

One condition for the closing of the ArcelorMittal transaction is that the debt restructuring programme has to be completed and must significantly reduce the amount of debt.

Given the significant size of its investment in G Steel, Arcelor Mittal will be consolidating G Steel and its subsidiary GJ Steel into its balance sheet, but it would not do so if the existing G Steel debt claims remain at the present level, said Mr Garas.

"Without the Arcelor Mittal investment or a substitute investment, the companies will not be able to maintain current going-concern status and a clean audit opinion. Then they will face delisting consequences from the SET," he said.

Under the agreement, ArcelorMittal, the world's largest steel company, would spend $250 million to acquire 40 percent of G Steel, replacing the family of founder Somsak Leeswadtrakul as its largest shareholder. Another $500-million credit facility would be provided to support working capital, capital expenditure and other corporate purposes.

Mr Garas said ArcelorMittal had agreed to allocate some of the $500 million credit facility from the new shareholder to repay debts owed to trade creditors. Additionally, existing shareholders' interests have been diluted by 50 percent as a result of the $200-million bond debt-to-equity conversion and the ArcelorMittal investment.

In December 2010, G Steel restructured $170 million in bonds plus $25 million in unpaid interest. Of the total outstanding debt, only $35 million consisted of publicly traded bonds, he said.

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