Capital changes for NZ Steel

Press, 3 February 1987, Page 20

Capital changes for NZ Steel

PA Auckland The directors of New Zealand Steel, Ltd, have called an extraordinary general meeting for February 19 to approve capital changes involving the issue of more shares to the Government.

This follows agreement for the Government to assume more of the debt costs of the expansion programme. The Government will end up with 90 per cent of the capital which it intends to sell eventually. The company seeks shareholder approval holders for the issue of 31,468 million ordinary shares to the Government, the issue of 20 million redeemable preference $lO shares to the Government, an increase of the authorised capital from $4OO million to $9OO million to allow the reconstruction consolidation, and the reduction of the $1 par value ordinary shares to 50c.

The latter step is subject to HigMCourt Approval. The directors, in their statement accompanying the

notice of meeting, say the capital reduction is necessary to adjust expansion project asset values in line with recommendations by consultant Booz Allen and “to provide for the excess start-up costs following commissioning.”

The Government is assuming further borrowings of $B2l million. The statement says there is to be a write-down of the capital work in progress by a further $5OO million, established in consultation with Booz Allen as yielding an appropriate valuation of the expansion assets. It said: “The resulting expansion project total cost is in accord with the original project cost estimates and is commensurate with accepting international costs of comparable steel equipment (the initial reconstruction provided for an asset writedown of only $7OB million).” And, as recommended also by Booz Allen, there 1| provision for the above affrmal costs of starting up the new assets of $376 million.

Costs of the stages 1 and 2 expansion are now forecast at $2750 million, compared with $2250M in the initial reconstruction proposal, caused by further delays, a recommended larger start-up cost provision and greater foreign exchange losses through rapid appreciation in the value of the Japanese yen. Completion of the cold rolling mill is now put at November and the hot rolling mill at February next year. Revised financial projections in dollars of the day forecast a tax-paid profit of SS7M in 1989, rising to S96M in 1998. The balance sheet in 1989 is projected to show fixed assets at SIISBM after accumulated depreciation of SI33M with total assets at 51337 M.

Shareholders’ funds are put at S7O9M, current liabilities at S7OM and term loans at SSSBM.

The directors’ statement says that immediately after implementing the reconstruction consolidation the borrow-

ings of NZ Steel will be small, but with sufficient facilities in place to maintain financing of the expansion project in the short term.

“However, further term borrowing in the region of $6OO million will be arranged,” it adds. This will be independent of the Crown and without financial guarantees from it The directors expect the company to be fully pricecompetitive with imports in the domestic market and with high quality and service standards to sustain a relatively high market share. "NZ Steel will pursue an export niche marketing strategy based on high value, differentiated products centring on customers’ special ■needs and supported by a high customer service level,” says the statement which notes export success in the United States with coated steel products.

Access to the Australian market under C.E.R. will be important, but the? competitiveness of NZ Steel products

there will depend on prevailing exchange rates and transTasman freight costs, says the statement

Given a fair C.E.R. regime, without the present bounties available to Australian producers, NZ Steel expects some of its higher valueadded products will prove to be viable exports to Australia, the directors said.

While the volumes will prove significant for NZ Steel, they will be very small in relation to the Australian steel market.