Creditor banks are planning to take over and rescue the Philippines' loss-making National Steel Corporation (NSC). The 14 creditors, led by Philippine National Bank (PNB), have grown impatient with a receivership committee that was supposed to have resolved the steelmakersÆ problems and found a new strategic investor to lead the troubled entity, according to the Philippine Daily Inquirer.
Creditor banks are now considering chipping in a total of $30 million to get the country's largest steelmaker operating again. ThatÆs less than 10% of the outstanding debt NSC owes to creditor banks. NSCÆs receivers said in May it needs $600 million in new capital and must convert half of its Ps16.5 billion ($374 million) debt into equity in order to return to profit in five years' time.
ôBasically, itÆs one of the big NPLs in the Philippines, but the exposure is not even," says one analyst in Manila. "The government banks had the highest exposure to this group.ö But other analysts insist PNB was the only government-owned bank to have a big exposure to the group, and that the others are private banks.
PNB, the countryÆs fourth largest bank, provided an estimated Ps5 billion in loans to NSC. PNB's gross loans stand at Ps100 billion, of which Ps40 billion, or 40%, are non-performing.
China Banking Corp, the Philippines' eighth largest retail lender, provided Ps1.37 billion in loans to NSC. The bank - which is controlled by one of the Philippines' richest tycoons, Henry Sy - had an estimated exposure to NSC that amounted to about 3.6% of its loan book.
The lenders had previously wanted to close down the steelmaker but are now considering potential partners to take a stake and, hopfully, revive the company's fortunes. ôAny restructuring should involve a strategic investor that is credible and that can infuse more equity,ö says Richard Tan, analyst at Kim Eng Securities in Manila.
NSC suspended operations in November last year due to its inability to repay debts. The company's creditors tried to foreclose on the steelmaker, but the group won a reprieve when the Philippines' Securities and Exchange Commission accepted its petition for debt relief.
NSC is still controlled by Hong Kong-based Hottick Investments Ltd, a vehicle owned by Abdul Rashid Manaf, the lawyer to Halim Saad, chairman of MalaysiaÆs Renong group. The Renong group is politically tied to MalaysiaÆs dominant ruling party UMNO û United Malay National Organization. Hottick took over NSC from Wing Tiek Holdings, a company held by Malaysian tycoon Joseph Chong for $800 million in 1997.
The Malaysian scandal
Four Malaysian banks - Malayan Banking Bhd, Bank Bumiputra Bhd, Bank of Commerce and RHB Bank Bhd - had lent Hottick Investments the $800 million to buy into NSC. Hottick, in return, pledged NSC assets to collateralize the loans. In 1998, it was discovered that the same assets had already been committed to local lenders in the Philippines.
The four Malaysian banks all lent foreign currency loans to Hottick Investments through their Labuan branches. (Bank Bumiputra Bhd has now been merged with MalaysiaÆs Bank of Commerce, part of Commerce Asset group). In 1998, the four banks sold their entire loan exposures in Hottick to Danaharta, MalaysiaÆs bad loan management company for M$1. The four banks wrote off their entire loan exposure to Hottick.
Back in the Philippines, most banks provisioned some of the loans, but not the entire amount, say analysts. Like the Malaysian government's view of Perwaja Steel, the Philippine government believes NSC's survival is vital for strategic reasons. The Phillipine banks hope for this reason they will recover some of their NSC loans.
Some quarters in the Philippines blame Hottick for NSC's woes. As late as December 1999, Hottick Investments said it wanted to sell its 82.5% stake in NSC. "We will sell it if the price is right," said Abdul Rashid Manaf in an interview with Bloomberg. "If anyone is interested in coming to us with a proposal, we can sit down and talk."
The Philippine government responded at the time that it was willing to talk with Hottick about reviving the steelmaker's operations, so long as the Malaysian firm put up $130 million in new capital. Names in the frame to buy Hottick's NSC stake include Ispat International of The Netherlands, Switzerland's Duferco Corp and France's Pentium Group.
