Global Steel default worries 13 creditors

The 13 creditor banks of Global Steel International (formerly National Steel Corp.) are becoming apprehensive over the Indian firm’s early default of its remaining P12.5-billion debt with the banks.

The banks are also dismayed that Global Steel has been trying to use some of its assets, already pledged to the banks, as collateral/guarantee for a Philippine Export-Import Bank sovereign guaranty for a $20-million to $30-million loan it is seeking from a foreign creditor.

The 13 creditor banks are currently seeking internal approval from their respective boards on whether or not to accept the Indian steel firm’s offer to renegotiate its Oct. 15, 2006 debt payment to the banks.

According to Renato Castillo, first senior vice president and chief credit officer of Philippine National Bank, the lead creditor bank of Global Steel, the Indian firm is already "technically in default and its remaining loan of P12.5 billion due and demandable" following Global’s attempt last Oct. 15 to issue a P250-million or $4.5-million letter of credit (L/C) guarantee for its Oct. 15, 2006 loan payment of P500 million or $9 million.

Global Steel, Castillo explained, tried to negotiate for a prepayment of P250 million or $4.5 million for its Oct. 16, 2006 loan payment without issuing another P250 million or $4.5 million L/C for the balance of its Oct. 15, 2006 loan installment.

Because of Global Steel’s insistence on such payment terms which the banks were against, the creditor banks last Oct. 15 called Global Steel in default for failing to issue the P500-million or $9- million L/C as earlier agreed upon.

The banks, Castillo said, had to call Global in default first to collect on the P250-million or $4.5-million L/C which Global issued.

However, Global Steel, Castillo said, is now negotiating with the creditor banks to issue another L/C for $4.5 billion in exchange for a waiver of non-default.

The creditor banks, Castillo said, now appear amenable to accepting Global’s revised offer of prepaying the P250 million or $4.5 million plus issuing an additional P250-million or $4.5-million L/C.

Other creditor bank sources also disclosed to The STAR their dismay over Global Steel’s attempt to use some its assets to secure a Phileximbank sovereign guaranty for another loan it is seeking from foreign creditor banks.

The banks, Castillo said, have already opposed the use of those assets.

Global Steel has been attempting to get a Phileximbank sovereign guaranty for a between $20-million to $30-million loan it is seeking from foreign creditor.