LionInd ... Dec10

Shareholders can now expect higher dividend payment under the company debts restructuring scheme, dating back to 2003, has finally been lifted.

As at Sept 2010, Lion Corp had a direct stake of 25.16% whole Cheng, who controls the Lion Group, had a direct stake of 14.21%.

The fact that debt laden Lion Corp – which needs money for debt repayment – and Cheng are direct shareholders may motivate Lion Industries to raise dividend payments.

In mid Dec 2010, Lion Industries announced that it had made full and final redemption of its ringgit denominated bonds and US dollar denominated consolidated and rescheduled debts. The announcement also said the restriction on dividend payment under the company’s restructuring scheme has been lifted.

To recap, under the covenants governing the debt restructuring scheme proposed in 2003, the company was prohibited from paying any cash dividends exceeding 1% par value of its share, until it had discharged its obligations under the scheme.

In a nutshell, proceeds from Lion Industries’ assets disposals and the bulk of its operating cash flow – generated mainly from its steel division – had gone to bonds and debt redemption over the past seven years, rather than for dividends.

The gradual redemption of Lion Industries’ bonds and USD debts had strengthened its balance sheet. From a net debt of RM2.18 billion or 1.16 times gearing as at FY2003, Lion Industries balance sheet as at Sept 2010, showed consolidated cash reserves of RM644 million versus rm337 million long term borrowings. It short term borrowings amounted to RM359 million – mainly trade financing for the steel operations. Meanwhile, the outstanding bonds and USD debts had shrunk to RM50 million as at Sept 30, 2010.

Its balance sheet has improved with shareholders’ equity increased to RM3.4 billion now.

The company within the Lion Group that needs capital contribution is its parent Lion Corp Bhd, whose core business is hot rolled coil mfg. Lion Corp still carried a relatively high net gearing of RM2.79 billion as at Sept 30, 2010 versus shareholders’ funds of RM534 million.