Global Steel creditors waive default call

Majority of the creditor banks of Global Steel International(formerly National Steel Corp.) have agreed to issue a waiver of non-default to the Indian steelmaker after the company agreed to issue another P250 million or roughly $4.5-million letter of credit (L/C) to secure its next loan payment.

Renato Castillo, first senior vice president and chief credit officer of Philippine National Bank, the lead creditor bank of Global Steel, said the creditors had informed Global steel of their favorable decision last Friday, Nov. 18.

The creditor banks will issue the waiver once Global Steel submits the $4.5-million L/C Global steel was declared in default by the banks last month after it tried to partially prepay its October 2006 loan without issuing an additional L/C to secure the remaining payment.

The creditor banks were dismayed over the firm’s early default of its remaining P12.5-billion debt with the banks, Castillo said.

The banks were also wary 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 foreign creditors.

Global Steel was considered "technically in default and its remaining loan of P12.5 billion due and demandable" following its attempt last Oct. 15 to issue a P250-million or $4.5-million 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 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 had to call Global steel in default first to collect on the L/C which it issued. However, Global Steel, Castillo said, negotiated with the creditor banks to issue another L/C for $4.5 million in exchange for a waiver of non-default.

The creditor banks, Castillo said, brought Global Steel’s offer to their respective boards and were able to get an approval on the revised payment.