CA asked to stop Banco de Oro rehab plan of Steel Corp

Steel Corporation of the Philippines, one of the country's top manufacturers of coated flat steel, on Thursday asked the Court of Appeals to stop the rehabilitation plan sought by one of its creditors, Banco de Oro-EPCIB (BDO), saying the move smacks of a takeover by the Henry Sy-led bank. In a 111-page petition, Steel Corp asked the CA to issue a temporary restraining order enjoining the Batangas Regional Trial Court Branch 2 from executing its December 3, 2007 order, paving the way for the rehabilitation of the company. Steel Corp lawyer Joaquin Obieta asked the appellate court to adopt instead its Updated Counter Rehabilitation Plan where it proposed the deletion of objectionable features of the approved rehabilitation plan. Obieta said that the take-over plan aims to convert a smaller part of the debt into equity and concurrently reduce the value of the owner's equity so that the converting creditors become virtual owners of the company. "Nothing is put to risk since the banks remain creditors for the bigger part of the debt which shall, in any case, be repaid from the available free cash during the next 12 years. Plus, they have management control in the management committee. It is a win-win situation but only for the creditor banks led by BDO-EPCIB," the petitioner said. Petitioners said that the decision of the rehabilitation court should be declared null and void on the ground that it has no jurisdiction to handle the rehabilitation proceedings due to its admission that it is "bereft of training and experience in rehabilitation matters." The corporation's total debt as determined by the rehabilitation court stands at P7.205 billion while its total physical assets amount to P13 billion. However, it has consistently registered operating profits with annual earnings averaging over P600 million. "It is thus incontrovertible that Steel Corp's prospects remain very positive. This, ironically, provided the motivation for BDO-EPCIB to file the petition for rehabilitation - not really to rehabilitate, but to take it over from its original owners," it said. The steel company said BDO-EPCIB designed the scheme such that it could take over cash flows, management and ownership. The firm's woes began when it put up a plant in Balayan, Batangas, in 1996. The steel mill housed the most modern and brand new machineries and integrated processing system in the country, which gave Steel Corp the capability to provide world-class coated steel sheets and coils for use in a diverse range of application - from appliance, to automotive, architecture to construction, and even furniture, packaging products and many others. The project loans of P 3.1 billion were provided by a syndicate of local and foreign banks and financial institutions. During the first 10 months of operations ending in December 31, 1999, Steel Corp generated revenues of P2.4 billion, with a net income of P329.5 million. However, the start of the Asian financial crisis in 1997 brought an increase in project cost by P3.3. billion and delay in the completion of the Balayan plant. The crisis also resulted in the sudden huge devaluation of the peso against the US dollar, thus, making the steel firm to lose some P1.3 billion. Despite principal payments of $13.8 million from 1999 to 2000, the peso equivalent of the dollar denominated obligations ballooned. As a consequence, Steel Corp was unable to enjoy fully the grace periods on its loans as the amortizations started on the same year the project became operations. In order to complete the project, the parent company of Steel Corp, Phil Steel Holdings Corporation (PHC), had to infuse an additional P1 billion into the project in 1998. Steel Corp's cash position was further drained due to increase in interest payments attributable to high interest rates, which reached as high as 22.75 percent in late 2000. It added that it was originally entitled to tariff protection of seven percent on its finished product in May 2000, but the same was unilaterally withdrawn and reduced to 3% in July, 2000 or only after two months through Executive Order No. 276, severely affecting the gross margins of Steel Corp. The creditors who were parties to the Omnibus Agreement, including BDO-EPCIB, consented to the deferment and agreed to wait Steel Corp's submission of its proposed business and financial plans. However, on September 11, 2006, while discussions were ongoing for a review of Steel Corp's previously restructured debt, and without consultation with other bank creditors, BDO -EPCIB decided to jump the gun and seek the firm's rehabilitation. BDO-EPCIB's proposed rehabilitation plan calls for a restructuring of some P2.2 billion of Steel Corp debt that it finds sustainable, and the outright conversion of the balance of the Steel Corp debt for P3.12 billion that it considered "unsustainable." Under the scheme, the Steel Corp said, the conversion into common shares at a ratio of P100 of debt to 1 common share would ultimately result into 90 percent ownership of Steel Corp. They said further conversion into redeemable shares at a ratio of P1 of debt to 1 redeemable share would translate into practically 100 percent ownership of Steel Corp. "BDO-EPCIB's rehabilitation proposal meant that the bank creditors will stay on as creditors for the sustainable debt portion, but at the same time, will be transformed into owners of the company holding 90 percent of Steel Corp's equity for the unsustainable debt portion," the petitioner said. Founder Abeto Uy incorporated Steel Corp in response to the government's call for the captains of the industry to develop an integrated iron and steel manufacturing industry for the country, in line with Republic Act 7103 also known as the "Iron and Steel Industry Act." - GMANews.TV