Pakistan Steel considering mortgage financing as last option

Mill expects to raise Rs16b to be used to buy raw material.

KARACHI: As a last option, Pakistan Steel Mills (PS) is considering acquiring mortgage financing by pledging a huge area of land measuring 16,000 acres if the government fails to release a bailout package for the troubled industrial giant, a top PS official said.

PS expects to raise at least Rs16 billion that can be used to improve raw material supply for the mill, which will eventually help in overcoming its financial woes.

According to the PS management, its land is worth more than Rs85 billion, a value that they say emerged in a recent survey conducted by the mill while evaluating its assets.

PS had finalised a business plan that would be sent to the government after the board’s approval, the official said, adding as a first option PS would ask the government to provide funds or subsidise mark-up on loans taken from banks.

PS wants to have a deferred payment system for 90-120 days to maintain the raw material supply chain. But for this it wants banks to give a guarantee on letters of credit for raw material purchase and needs government’s help to pay banks’ markup.

These days, the Russia-made steel giant is going through its toughest period. Its financial conditions started deteriorating three years ago from mid-2008 when international steel prices almost tripled in just a few months during the global financial crisis.

Like many other steel mills around the world, PS failed to maintain the raw material supply chain and plunged into a severe financial crisis, from which it is still trying to recover.

In 2008-09, annual losses of PS hit an unprecedented high of Rs26 billion due to high international steel prices that reached $1,200 per ton from an average of $400 per ton. The losses decreased to Rs11 billion in 2009-10, but PS failed to reduce losses further next year when they stood at over Rs11 billion.

Owing to the shortage of raw material, PS is not running at full production capacity and needs continuous funds to restore the badly damaged supply chain.

President Asif Ali Zardari, during his last visit to Russia, signed an agreement under which Russia would provide technical and financial support to PS. The government had also planned to expand PS to increase annual capacity to three million tons in two phases from the present 1.1 million tons.

Published in The Express Tribune, October 4^th, 2011.