A Giant Awakens

The reopening of National Steel Corporation will benefit Iligan City and the country’s economy as a whole

By Maricar T. Manuzon

The Asian contagion has led to the collapse of some of the biggest companies in the region, with the Philippines being one of the worst hit countries. Ironically, few have associated the plight of the mothballed National Steel Corporation (NSC) to the 1997-1998 financial crisis.

But NSC’s financial woes were in fact sparked by the Asian crisis, which triggered a rise in interest rates, a drastic depreciation in foreign exchange, as well as the fall in sales of steel products which even then faced competition from cheaper imports.

The National Steel Corporation used to be controlled by a Malaysian regional investor, the Hottick Investments Ltd. When Hottick failed to support the maturing obligations of the ailing steel-maker, then amounting to about P16 billion, the giant steel plant had to suspend operations in November 1999, and subsequently applied for debt moratorium with the Securities and Exchange Commission.

Hottick’s resulting non-performing loans from Malaysian banks – initially US$800 million used to buy into NSC in 1997 – were absorbed by Danaharta, the Malaysian government-owned debt rehabilitation agency. NSC, thus became 82.5%-owned by the Malaysian government.

A City’s Loss

The closure of NSC’s operations more than four years ago upset the financial stability of the whole city of Iligan in Mindanao. Not only did the city lose its biggest employer of 1,800 workers (post privatization), NSC’s closure also created a domino effect on its ancillary industries, causing some companies to close shop while putting others in grave financial distress. Big companies like the Mabuhay Vinyl Corporation, Refractories Corporation of the Philippines, Maria Cristina Chemical Industries, and Worth Industries existed mainly to supply NSC with some of the raw materials it needed such as bricks, work rolls, bearings, grease, and chemicals like hydrochloric acid and iron pyrite.

The Iligan City government also lost millions of pesos in fiscal revenues and faced a crisis situation where its constituents went hungry, what with heads of families losing their jobs.

These were the reasons why the Philippine government had been pushing for the sale of NSC assets in order to restart operations. The Department of Trade and Industry under then Secretary Mar Roxas laid the groundwork for the entry of foreign investors to revive the NSC.

Before Bankruptcy

Established in 1962, the National Steel Corporation is one of the largest steel manufacturers in the ASEAN, boasting of a rated capacity of 1.5 million metric tons per annum, nearly half of the country’s total demand of 3.5 million MT. It is located in Iligan City, housed in a 140-hectare area which extends almost about one kilometer vertically. Its operating mills are equipped to produce billet, round and square steel, flat steel like hot and cold rolled coils, and hot rolled plates.

Before its closure in 1999, the NSC was remitting about P1 billion in annual taxes to the national government and an additional P200 million in real estate taxes to Iligan City.

In its shutdown stage, the steel plant was maintained by a rotating crew of retrenched workers accepting minimal wages. The maintenance operation, which reportedly had sets of around 200 former employees working at a time in a 13-day month for an average of three months is designed to prevent NSC facilities from breaking down altogether. On the one hand, this scheme provided some of the retrenched workers a means of livelihood.

Knight in Shining Armor

After being closed for almost four years, the National Steel Corporation is finally reopening with the entry of a new group of investors: Global Infrastructure Holdings Ltd. (GIHL) of India. GIHL, which bagged the contract to rehabilitate and operate NSC, is the principal holding company of the Ispat Industries, Ltd., a market leader in India’s “speciality steel” market. The operation of NSC is Ispat’s first major industrial investment in the Philippines. It plans to eventually integrate its steel plant operations in the country by mining iron ore which is raw material in the production of a host of steel products.

The plant’s rebirth followed the formal signing of a memorandum of agreement between NSC’s creditor banks and GIHL. The NSC’s creditor banks were led by the Philippine National Bank, Metrobank, Land Bank of the Philippines, China Banking Corporation, and the Rizal Commercial Banking Corporation. The five banks held 64% of NSC’s indebtedness to the banking system valued at P13.8 billion.

The GIHL will formalize its full control of the NSC as soon as an asset purchase agreement is finalized with the creditors. Under the agreement, GIHL will pay P1 billion down payment to the secured creditors. The balance of P12.5 billion is payable in eight years under a negotiated schedule.

Boon to Provincial and National Economy

The reopening of the National Steel Corporation – now Global Steelworks International Incorporated – would once more place Iligan City in the center of Mindanao’s industrialization. At a price of US$500 (P27,500) per ton in the world market, the steel plant could generate substantial revenues annually, given the plant’s rated capacity, with part of its output to be exported to countries like China.

Overall, the government sees the rehabilitation of NSC as a major factor in the growth of the Philippine economy as NSC is expected to contribute significantly to the country’s gross domestic product, real estate taxes to Iligan City, and taxes to the national government.