June 16, 2008

Sahaviriya Hopes to Secure Major Loan From China

By Yuthana Praiwan, Bangkok Post, Thailand

Jun. 13--Sahaviriya Steel Group, Thailand's largest steelmaker, is seeking a long-term loan from the Export Import Bank of China (China Exim Bank) for the first phase worth 90 billion baht of its smelting plant in Prachuap Khiri Khan, according to group president Win Viriyaprapaikit.

"There's a high chance of wrapping up a loan deal with the Chinese," Mr Win said at a seminar on the steel industry outlook, held by the Stock Exchange of Thailand yesterday.

He added that Beijing was aggressively encouraging its companies and financial institutions to invest more abroad, both in the form of direct investment and loans, to drain excess liquidity.

The group has struck deals with Chinese machinery and equipment manufacturers whose technology is on par with their European counterparts to supply the new plant.

He said that as Sahaviriya was a client of Chinese suppliers, Beijing was willing to provide financial support, which he expected should be enough to cover the cost of the machinery and equipment.

The machinery and equipment are worth 70 percent of total investment of the 500-billion-baht project. The balance will be sourced from a share offering.

The first phase of the smelter, with a capacity of five million tonnes, recently secured long-term purchase contracts with iron ore mine operators from Australia, Brazil and South Africa.

The company expects to produce premium-grade steel products to tap into rising domestic demand in the automobile, electronic and electrical-appliance sectors for which Thailand is the regional production base.

The company has a strong determination to go ahead with the megaproject even though it has faced strong opposition from activists since the beginning, which has caused some delays.

The smelter is still in the process of seeking approval of its environment impact assessment (EIA) and promotional privileges from the Board of Investment.

The group plans to submit a new application for BoI privileges after its first application was approved but expired before the construction started.

Once it gains the BoI approval, the smelter will start to operate in two years. In addition to the megaproject, Sahaviriya plans to simultaneously build another coated steel sheet plant to serve high-end consumers. Details of the plant have yet to be studied.

It also plans to increase the production of cold-rolled and hot-rolled sheets by 20-30 percent of the current annual capacity of 1.8 million tonnes.

Meanwhile, Sahaviriya Steel Industries Plc (SSI), the group's SET-listed subsidiary and the country's biggest hot-rolled steelmaker, expects higher steel prices to boost its profit this year, said Mr Win, who is also the president of SSI. "Our performance will definitely be better than what we saw in the first quarter."

Net income in the first quarter jumped almost eightfold to 877.3 million baht. It reported net income of 916.1 million baht last year, down 66 percent from 2006.

Steelmakers worldwide are passing on higher costs to customers to bolster their profits, with the contract price of iron ore rising 65 percent this year. Asian spot steel prices may climb because of the closures of plants in China before the Olympics Games in August.

SSI shares closed yesterday at 1.04 baht, up two satang, in trade worth 25.4 million baht.


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