TRIS Rating Co., Ltd. has placed the company rating of Sahaviriya Steel Industries PLC (SSI) on CreditAlert with “developing” implication. The action follows the announcement of SSI on 27 August 2010 that SSI signed a memorandum of understanding (MOU) with Corus UK Ltd. (Corus). SSI announced plans to acquire one of Corus’s integrated iron & steel making plants, Teesside Cast Products (TCP), which includes iron-making, steel-making, and power generation facilities. The transaction will cost SSI approximately US$500 million. Currently, SSI is in the process of conducting due diligence and arranging financing. SSI and Corus will continue their negotiations to reach a definitive sale and purchase agreement.
TRIS Rating said, the CreditAlert placement reflects uncertainties regarding the financing structure of the proposed transaction and uncertainties surrounding the costs and benefits of the acquisition. SSI expects this strategic investment will, among other benefits, result in more efficient inventory management and will ultimately reduce SSI’s working capital requirement. However, the improving business profile is weighted against deterioration in SSI’s financial profile if the company decides to use a substantial amount of debt financing to complete the acquisition.
Corus is Europe’s second largest steel producer, with its major steel-making operations primarily in the UK and the Netherlands. It is a subsidiary of Tata Steel Group, one of the world’s top ten steel producers. TCP is an integrated iron- and steel-making plant located in northeast of England with an annual capacity of 3.5 million tonnes of steel slab. The acquisition of TCP is in line with SSI’s long-term strategy toward fully integrated steel production. Sahaviriya Group has shown its intention to invest in iron making in Thailand since 2005. However, the development of the project has progressed very slowly.
TRIS Rating will conduct an extensive analysis to determine the full impact of the transaction on SSI’s credit profile and will resolve CreditAlert once crucial terms and conditions of the transaction are finalized. -- End
Company Rating: BB+ CreditAlert Designation: Developing
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