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The proposed guarantee is part of the settlement agreement over a financial claim made on April 10 by Tenaga, Lion Corp said in a filing to Bursa Malaysia last week.

As Megasteel contributes more than 90% to the group’s revenue, “it is therefore crucial for Lion Corp to undertake the proposed provision of corporate guarantee to ensure that Megasteel continues its operation in an orderly manner”, Lion Corp said.

Megasteel, the country's sole producer of hot-rolled coil, is 78.9% owned by Lion Corp through a wholly-owned subsidiary Limpahjaya Sdn Bhd.

Under the proposed terms, Tenaga will not be bound to take action against Megasteel prior to enforcing the corporate guarantee of 30 million ringgit ($9.3 million), it said.

It also said there is no assurance that Megasteel will be able to pay the amounts owing to Tenaga as and when they fall due and payable and should this occur, Lion Corp will have to indemnify Tenaga of all liabilities, claims, damages, interests and costs up to the amount of 70 million ringgit ($21.6 million), including the existing 40 million ringgit ($12.3 million) corporate guarantee.

This risk, however, could be mitigated if the steel industry in Malaysia could overcome the situation of rampant importation of steel products, it added.

The local steel companies, including Megasteel, are working with the government to improve measures to safeguard the domestic steel industry.

“Until such measures are implemented effectively, Megasteel’s operating environment is expected to continue to be tough and challenging,” Lion Corp said.