1. Policy and Procedures of the Debt-to-Equity Conversion Scheme, Rationale, Advantages and Disadvantages, and Benefits which the Company will obtain from the Debt-to-Equity Conversion Scheme
1.1 Policy of the Debt-to-Equity Conversion Scheme
As of March 31, 2012, the Company and the Group had a significant amount of liabilities in total of Baht 28,570 million. Therefore, it is necessary to implement a debt restructuring plan (the “Debt Restructuring Plan”) in order to lower the debt burden to a level that is manageable and acceptable to the new strategic investor, so that the Company can conduct its business in a stable manner and improve its financial status. The Debt Restructuring Plan consists of a request to reduce the amount of debt, to extend the repayment term, and to do a debt-to-equity conversion. The debt-to-equity conversion is a part of the Debt Restructuring Plan. The principles of a debt-to-equity conversion are as follows:
(1) to negotiate with the creditors to reduce the amount of debt; and
(2) to repay the remaining debt with the newly issued ordinary shares of the Company to creditors that participate in the debt-to-equity conversion scheme. The Company hopes that each creditor will participate in the debt-to-equity scheme with the total outstanding debt balance. However, this is subject to the negotiation and the acceptance on the case by case basis. The Company will make the best effort to negotiate for haircut as much as possible. Likewise, this depends on negotiation on the case by case basis which can be varied and that some creditors may participate in the debt-to-equity scheme without accepting the haircut.
In the event that the creditors do not participate in the debt-to-equity conversion scheme, the Company will endeavor to extend the repayment term of the outstanding debt as long as possible.
1.2 Procedures of the Debt-to-Equity Conversion Scheme
To allocate 6,845,670,192 newly issued ordinary shares with a par value of Baht 1 per share to creditors of the Company under the debt-to-equity conversion scheme, at Baht 0.50 per share. The offering price is lower than the par value of the Company’s share price. Therefore, the Company is required to comply with Section 52 of the Public Limited Companies Act B.E. 2535 (1992), as amended. However, the offering price is not lower than 90% of the Market Price according to the relevant notifications of the Securities and Exchange Commission.
“Market Price” means the weighted average price of the Company’s ordinary shares traded on the Stock Exchange for 15 consecutive business days prior to the date on which the Board of Directors resolves to propose the agenda item regarding the offering of newly issued shares, to the 1st/2012 Extraordinary General Meeting of
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Shareholders for further approval. The Market Price during that period (from June 8, 2012 to June 28, 2012) was Baht 0.3726 per share.
1.3 Rationale, Advantages and Disadvantages, and Benefits which the Company will obtain from the Debt-to-Equity Conversion Scheme
On December 19, 2011, the Company received notice of termination of the Shares Subscription Agreement dated December 15, 2011 from ArcelorMittal Netherlands B.V. (“AM”). The Company agreed to the termination of the Shares Subscription Agreement by AM, as it was in accordance with the conditions precedent for investment under the Shares Subscription Agreement. The result of the termination of the Shares Subscription Agreement is that there will be no tender offer of the Company’s shares by AM, and no tender offer of G J Steel Public Company Limited (“GJS”) shares by the Company and Oriental Access, resulting in the Company having no source of funds to conduct its business in a stable manner. Therefore, the Company deems it necessary to obtain a source of funds from a new group of investors. However, if the debt restructuring plan of the Company does not have solid and clear progress, it would be difficult for a new group of investors to have confidence in investing in the Company, since the Company’s debt is no longer manageable.
A debt-to-equity conversion is one of the mechanisms to be used to repay the outstanding debt of the Company. However, a debt-to-equity conversion, including the Debt Restructuring Plan, will result in the dilution of control for the existing shareholders.
The Debt Restructuring Plan will reduce the Company’s and the Group’s debt, and it is expected that the Company and the Group will record a profit from the reduction of the outstanding debt, which will improve shareholder equity. In addition, the Debt Restructuring Plan will create confidence to a group of investors in the Company, and provide convenient as well as accelerate the injection of new funds from a group of investors. If the new funds are injected into the Company, it will be able to continue its business and will have the opportunity to strengthen its financial condition. Furthermore, the value of the Company’s securities will increase in the long run. 2. Source of Debt
The Company expects that the debt to be negotiated in the debt-to-equity Conversion scheme can be categorized as follows:
Group of Creditors Approximate Amount of Debt
as of March 31, 2012 (Millions of Baht)
Group of major trade payables 7,000
Group of customers who paid advances, but to whom the Company has not delivered its goods
2,000 Group of other account payables and
current payables 3,000
Remarks: The categories above may not be consistent with those specified in the financial statements, as the categories above are listed in relation the source of debt for the benefit of negotiation.
3. Summary of Financial Statements of the Company
G Steel Public Company Limited Statements of Comprehensive Income
Unit : Baht Statements of
Comprehensive Income Separate financial statements
Q1/2012 YR2011 YR2010 YR2009
Income
Revenue from sale of goods 3,109,549,560 12,258,015,780 7,856,484,328 9,839,959,917 Revenue from rendering of
services 0 0 402,995,660
Reversal of bad and doubtful
debts expense 33,893,836 64,003,613 0 0
Reversal of loss on devaluation
of inventories 156,239,684 0 913,693,213 2,076,078,095
Reversal of provision for loss on purchase orders for
undelivered raw material 0 63,043,415 221,946,374 0
Reversal of loss on impairment
of assets 0 0 0 0
Reversal of provision for loss
on contract termination 0 61,599,386 0 0
Net foreign exchange gain 311,696,756 0 1,237,462,302 562,654,685 Gain from debt restructuring 0 349,991,856 3,187,595,196 0 Other income 55,711,102 182,959,724 122,179,494 252,622,707 Total income 3,667,090,938 12,979,613,774 13,539,360,907 13,134,311,064
Expenses
Cost of sale of goods 3,491,135,138 13,424,666,299 8,480,825,438 13,674,789,085 Selling expenses 25,787,517 135,451,819 96,072,035 151,035,660 Administrative expenses 247,966,397 624,097,046 867,304,604 586,693,548 Loss on confirmed purchase
orders for undelivered raw
materials 33,781,558 0 0 348,147,462
Losses related to performance
guarantee 0 0 0 0
Bad and doubtful debts expense 0 0 62,121,017 4,356,951,487 Loss on devaluation of
inventories 0 244,321,028 0 0
Loss on impairment of assets 77,583,189 246,098,126 8,983,356,797 1,906,992,628
Net foreign exchange loss 0 389,617,615 0 0
Statements of
Comprehensive Income Separate financial statements
Q1/2012 YR2011 YR2010 YR2009
Finance costs 163,281,588 213,840,160 1,457,655,553 1,178,357,649 Total expenses 4,073,420,105 15,487,661,385 22,000,959,042 22,885,523,438 Loss for the year (406,329,167) (2,508,047,611) (8,461,598,135) (9,751,212,374) Other comprehensive income
for the year 0 0 0 0
Total comprehensive income
for the year (406,329,167) (2,508,047,611) (8,461,598,135) (9,751,212,374)
Loss attributable to :
Owners of the Company (406,329,167) (2,508,047,611) (8,461,598,135) (9,751,212,374)
Non-controlling interests 0 0 0 0
Loss for the year (406,329,167) (2,508,047,611) (8,461,598,135) (9,751,212,374)
Loss per share
G Steel Public Company Limited Statements of Financial Position
Unit: Baht Statements of Financial
Position Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Assets
Current assets
Cash and cash equivalents 62,866,204 58,392,456 18,178,077 17,658,714 Trade accounts receivable 56,379,562 251,864,968 226,347,305 996,665,965 Amounts receivable from
related parties 128,844,010 156,419,406 111,282,981 390,155,972 Receivable from related party
for offsetting transaction 946,187,395 946,187,395 0 0
Inventories 1,800,056,261 2,555,199,365 2,572,416,492 691,187,498 Other current assets 237,984,236 310,121,179 269,662,942 425,853,210 Total current assets 3,232,317,668 4,278,184,769 3,197,887,797 2,521,521,359
Non-current assets
Restricted deposits at financial
institutions 24,000,000 24,000,000 27,493,574 31,725,449 Investments in subsidiaries 2,696,241,056 2,773,824,246 3,066,378,647 3,502,800,000 Receivable from related party
for offsetting transaction 0 0 957,881,336 992,236,875
Advance payment for purchases of property, plant and
equipment 0 0 0 3,821,129,342
Statements of Financial
Position Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Liabilities and equity
Current liabilities
Short-term loans from financial
institutions 186,965,015 195,436,654 201,259,479 228,828,690 Trade accounts payable 8,527,536,843 10,077,237,872 7,815,797,034 6,431,967,517 Current portion of liabilities
which were included under
rehabilitation plan 18,137,017 18,137,017 14,260,686 15,124,430 Current portion of long-term
loan from financial institution 0 0 0 0
Bonds 1,065,483,793 1,094,482,584 372,026,932 5,668,531,420 Short-term loan from other
parties 74,000,000 15,000,000 517,971,044 406,774,342
Loan from shareholder 432,622,676 432,622,676 0 0
Advances received from
customers 776,728,860 465,760,802 2,182,592,744 1,784,553,409 Other payables and accrued
expenses 1,463,390,965 1,406,875,811 680,659,554 228,633,858 Accrued interest expenses 1,698,608,762 1,601,832,700 1,639,160,707 1,325,002,510 Provisions 1,289,714,406 1,222,048,130 1,302,278,245 884,191,549 Other current liabilities 874,475,272 835,751,694 843,238,380 1,328,102,688 Total current liabilities 16,407,663,609 17,365,185,940 15,569,244,805 18,301,710,413
Non-current liabilities
Liabilities which were included under rehabilitation plan - net
of current portion 515,665,178 515,665,178 529,526,161 562,973,119
Finance lease liabilities 471,666 532,057 1,280,781 0
Bonds 0 0 669,656,810 0
Employee benefit obligations 18,329,121 14,792,175 0 0
Statements of Financial
Position Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Equity
Share capital
Authorised share capital
Ordinary share
29,798,589,773 shares, par Baht 1 ( 2010: Ordinary share 18,960,000,000 shares
par Baht 1 ) 29,798,589,773 29,798,589,773 18,960,000,000 13,860,000,000 Issued and paid-up share
capital Ordinary share 17,028,557,473 shares par Baht 1 ( 2010: Ordinary share 16,481,695,198 shares par Baht 1 ) 17,028,557,473 17,028,557,473 16,481,695,198 13,760,435,198
Additional paid in capital:
Share premium 795,133,358 795,133,358 1,145,125,214 1,976,477,530 Premium on capital
reduction 206,307,094 206,307,094 206,307,094 206,307,094
Retained earnings (deficits)
Appropriated:
Legal reserve 763,976,886 763,976,886 763,976,886 763,976,886 Unappropriated (12,431,827,979) (12,025,498,812) (9,517,451,201) (1,055,853,066) Equity attributable to owners
of the Company 6,362,146,833 6,768,475,999 9,079,653,191 15,651,343,642
Non-controlling interests 0 0 0 0
G Steel Public Company Limited Statements of Cash Flows
Unit: Baht
Statements of Cash Flows Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Cash flows from operating
activities
Loss for the year (406,329,166) (2,508,047,611) (8,461,598,135) (9,751,212,374)
Adjustments for
Depreciation and amortization 250,654,886 1,071,489,142 602,811,266 679,099,684 (Reversal of) loss on
impairment of assets 77,583,189 246,098,126 8,983,356,797 1,906,992,628 Interest income (19,403,537) (75,416,841) (65,852,585) (106,594,256) Finance costs 163,281,588 213,840,160 1,457,655,553 1,178,357,649 (Reversal of) bad and doubtful
debts expense (33,893,836) (64,003,613) 62,121,017 4,356,951,487 (Reversal of) loss on
devaluation of inventories (156,239,684) 244,321,028 (913,693,213) (2,076,078,095) (Reversal of) loss on confirmed
purchase orders for raw material 33,781,558 (63,043,414) (221,946,374) 348,147,462 Unrealised (gain) loss on
exchange (270,731,875) 394,273,018 (1,129,410,702) (538,321,384) Discount of liabilities included
under the rehabilitation plan 0 0 0 (127,631,185)
Loss on write-off of tax benefit 0 0 0 0
Gain from sale of other
long-term investment 0 0 0 0
Loss on sale of investment in
subsidiaries 0 0 0 0
(Reversal of) provision for loss
on contract termination 195,433 (61,599,386) 289,491,303 0 Provision for tax - related
liabilities 33,689,285 209,569,292 350,541,767 477,908,506 Losses related to performance
guarantees 0 0 0 0
(Gain) loss from disposal of
assets (149,999) (1,653,104) 30,163,733 746,312
Loss on purchase of inferior
raw material 0 0 0 0
Gain from debt restructuring 0 (349,991,856) (3,187,595,196) 0
Employee benefit obligations 3,536,946 14,792,175 0 0
Consulting fee for bonds
restructuring 0 0 90,000,000 0
Profit (Loss) from operating activities before changes in
Statements of Cash Flows Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Changes in operating assets
and liabilities
Trade accounts receivable 33,912,798 84,170,358 187,851,527 (90,981,506) Amount due from related parties 11,632,959 2,355,324 264,183,476 (544,040,964) Inventories 911,382,788 (227,103,901) (967,535,781) 2,134,784,288 Receivables from scrap sales 447,696 6,800,000 825,000 317,000,921 Other current assets 91,518,874 (17,201,289) 67,874,334 56,389,158
Receivables from others 0 0 0 0
Other non-current assets (13,656,925) (46,835,830) (35,270,925) (42,074,016) Trade accounts payable (1,144,061,975) 670,694,550 2,013,135,560 1,945,656,244 Advances received from
customers 310,968,058 (132,760,472) 398,039,335 (171,167,994) Other payable accrued expenses 67,414,502 521,911,089 40,470,291 558,922,022 Other current liabilities 11,794,785 46,109,645 146,723,101 (32,941,541) Provision for tax-related
liabilities paid 0 0 0 0
Income tax recovered 0 0 0 1,158,246
Income tax paid (5,052) (914,949) (1,446,907) (942,184)
Net cash flows provided by
operating activities (42,676,704) 177,851,641 894,242 480,129,108
Cash flows from investing
activities
Interest received 1,481 23,157,205 64,705,206 683,827
Increase in current investment 0 0 0 0
Increase) decrease in restricted
deposits at financial institutions 0 3,493,574 4,231,875 406,390,476 Purchase of property, plant and
equipment (1,730,020) (24,746,823) (30,490,384) (30,551,611) Proceeds from sales of property,
plant and equipment 149,999 1,653,127 1,154,979 0
Purchase of intangible assets 0 (36,493) (9,824,838) 0
Proceeds from receivable from related party for offsetting
transaction 0 11,693,942 67,856,686 0
Loans to subsidiary (10,610,706) (13,790,000) (23,100,000) (704,457,852) Advance for purchase of
property, plant and equipment 0 0 0 0
Advance for purchase of
machinery 0 0 0 (19,712,791)
Payment for investing in
subsidiaries 0 0 (41,446,121) 0
Proceeds from sales of
investment in subsidiary 0 0 0 0
Net cash flows provided by
Statements of Cash Flows Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Cash flows from financing
activities
Finance costs paid (25,488,522) (119,973,907) (111,145,124) (517,955,683) Payment of liabilities which were
included under rehabilitation plan 0 (4,562,834) (7,247,045) (12,651,608) Proceeds from short-term loans
from financial institutions 0 0 0 157,709,202
Decrease in short-term loans
from financial institutions (4,036,275) (13,996,638) (10,426,879) (239,452,842) Proceeds from short-term loans
from other parties 59,000,000 0 135,000,000 569,528,499
Repayment of short-term loans
from other parties 0 0 (40,000,000) (143,219,808)
Proceeds from short-term loans
from related party 30,000,000 0 737,570 0
Repayment of long-term loans
from financial institutions 0 0 0 0
Repayment of finance lease
liabilities (135,910) (528,415) (380,804) 0
Loan from shareholder 0 0 0 0
Proceeds from issue of ordinary shares of subsidiary to
non-controlling interests 0 0 0 0
Proceeds from issue of warrants of subsidiary to non-controlling
interests 0 0 0 0
Net cash flows used in
financing activities 59,339,293 (139,061,794) (33,462,282) (186,042,240) Net increase in cash and cash
equivalents 4,473,342 40,214,379 519,363 (53,561,083)
Cash and cash equivalents at 1
January 58,392,456 18,178,077 17,658,714 71,219,797
Effect from exchange rate changes on balances held in
foreign currencies 0 0 0 0
Cash and cash equivalents at 31
Statements of Cash Flows Separate Financial Statements
31-Mar-12 31-Dec-11 31-Dec-10 31-Dec-09
Additional details of cash flow
Non-cash items
Conversion of debt to share capital 0 196,870,419 1,790,094,600 0 Issue of ordinary shares to pay for
consulting fee (including VAT) 0 0 99,813,084 0
Offset of receivables from scrap sales with liabilities which were included under the rehabilitation plan, provision for loss on
contract termination and payables
from purchase of machineries 0 15,745,893 434,554,936 0
Transfer of receivables from scrap sales to receivable from related
party for offsetting transaction 0 0 33,501,147 0
Offset of trade accounts
receivables with short-term loan from other parties, accrued interest expense, payables from purchase of machineries and trade
accounts payable 0 384,554,792 0 0
Transfer guarantee obligation to
loan from shareholder 0 432,622,676 0 0
Transfer of long-term loan from financial institution and accrued interest expense to loan from
shareholder 0 0 0 0
Purchase of vehicle under finance
lease liabilities 0 0 2,190,000 0
Transfer of trade accounts receivable to amounts receivable
from related parties 0 29,276,360 0 0
Transfer other receivables from scrap sales to amount receivable
from related parties 0 0 0 992,236,875
Offsetting between trade accounts receivable and advance received
from customers 0 0 0 0
Purchase of machineries by off-setting with trade accounts
receivable 0 0 0 0
Purchase of machineries by off-setting with other receivables
from scrap sales 0 0 0 1,442,193,787
Offset of trade accounts receivable
with trade account payable 173,536,581 0 0 0
Offset of due from related party
4. Names, addresses, and number of creditors to receive newly issued shares subject to the Debt-to-Equity Conversion Scheme
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6. Type and number of shares to be issued for debt settlement subject to the Debt-to-Equity Conversion Scheme
6,845,670,192 newly issued ordinary shares will be allocated to creditors of the Company under the debt-to-equity conversion scheme, as shown on table in 4. 7. Newly issued share price and criteria for setting the share price
The offering price is lower than the par value of the Company’s share price. Therefore, the Company is required to obtain the approval for the Shareholders Meeting and to comply with Section 52 of the Public Limited Companies Act B.E. 2535 (1992), as amended. However, such an offering price is not lower than 90% of the Market Price according to the relevant notifications of the Securities and Exchange Commission.
