China Precision Steel Inc. (Nasdaq: CPSL), a steel manufacturer, indicated that it might be headed for liquidation if restructuring talks with lenders do not work out.
The Hong Kong company defaulted on short- and long-term bank loans, totaling nearly $44 million, in June and July 2012, it says in filings with the U.S. Securities and Exchange Commission.
China Precision raised substantial doubt about its ability to continue as a going concern, or without the threat of liquidation, in a May 15 10-Q filing with the SEC, citing the uncertainty surrounding its attempt to restructure bank loans and the lack of readily available third-party capital. The steel maker is in talks with lenders regarding the loans, but as of the filing, no agreement had been reached.
Under the company’s loans, the banks have the right to take possession of a substantial portion of China Precision’s assets. Lenders include Raiffeisen Zentralbank Österreich AG, DEG – Deutsche Investitions – und Entwicklungsgesellschaft mbH.
In addition to restructuring with its lenders, the company is adjusting its product portfolio to focus more on high carbon precision steel, and has added new members to its senior management team to help expand the product line, says China Precision's CFO, Leada Li.
"At the moment we're focusing on resolving the loan situation. However, we're also willing to discuss M&A opportunities if the conditions present a good fit," Li says.
The company manufactures and sells cold-rolled precision steel products for automobiles, spare parts, kitchen tools, electrical appliances, roofing and food-packaging materials. China Precision has five subsidiaries: Partners Success Holdings Ltd., Blessford International Ltd., Shanghai Chengtong Precision Strip Co. Ltd., Shanghai Blessford Alloy Co. Ltd. and Shanghai Tuorong Precision Strip Co. Ltd. China Precision has about 240 employees, Li says.
For the company’s third fiscal quarter, ended March 31, China Precision had $8.6 million in revenue, a 71 percent decrease from that quarter the previous year. The company’s losses increased from $12.7 million for the quarter, compared with a $2.5 million loss in the quarter for the same period in 2012, the SEC filing shows.
The company listed assets of $99 million and liabilities of $71 million in SEC filings.
Tightened credit and slowing growth in China’s steel market caused a slow turnover for the company’s accounts receivables for the quarter ended March 31, China Precision says in the filing. Other coal and steel companies in China are experiencing similar problems, the company says. The economic slowdown China experienced in 2012 dampened spending on infrastructure and construction throughout the country.
China Precision is negotiating with major suppliers in hopes of gaining refunds of advances. So far, it has been unable to secure a substantial refund, due to the “credit crunch in the Chinese steel industry.”
For the last edition of Turnaround Tuesday story, see “Milagro Extends Note Exchange to Lower Debt.”
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