Bank of China contributes to RM 1.8 billion syndicated loan for Kemaman Integrated Steel Mill Construction Project

Project narrative

In December 2011, Eastern Steel Sdn. Bhd. (东钢集团有限公司 or ESSB) — a special purpose vehicle and joint venture of Hiap Teck Venture Berhad (55% equity stake), China Shougang Group (40% equity stake), and Chinaco Investment Pte. Ltd. (5% equity stake) — signed an RM 1.8 billion syndicated loan agreement with Bank of China, ICBC, and HSBC for the Kemaman Heavy Industrial Park Construction Project. The borrowing terms of the loan are unknown. However, it is known that the borrower was expected to use the proceeds of the loan to finance a July 21, 20111 engineering & procurement contract and a July 21, 2011 construction contract with China Shougang International Trade and Engineering Corporation for the design, procurement and construction of an integrated steel mill in Kemaman, Terengganu. ESSB also expected to incur additional costs related to other construction contracts for the same integrated steel mill, which would be awarded to local contractors in Malaysia. The purpose of the project was toe construct blast furnace-basic oxygen furnace (BF-BOF) and electric arc furnace (EAF) steel plant operating in the East Coast Economic Region’s (ECER) Kemaman Heavy Industrial Park (KHIP), which is located in Kemaman, Terengganu, Malaysia (exact locational coordinates: 4.285062, 103.432551). The plant houses a sintering plant, a blast furnace, a BOF converter with a capacity of 700 ttpa and captive power plant. China Shougang International Trade and Engineering Corporation was the contractor responsible for project implementation. A detailed Environmental Impact Assessment (DEIA) for the project was received on November 4, 2009 and approved on January 27, 2010. Construction commenced on December 5, 2011. Production commenced in January 2015. However, in October 2015, operations were halted to minimize losses because of difficult market conditions at the time that were caused by the influx of cheap imports from China, which began in 2013. ESSB successfully resumed production and re-ignited its blast furnace on July 16, 2018. ESSB is principally involved in the manufacturing, selling and dealing in a range of steel products using the blast furnace plant with a current production capacity of 700,000 metric tonnes of steel slabs per annum. ESSB’s production is targeted to be sold locally to satisfy domestic demand and also exported to neighbouring countries principally, Indonesia and Thailand, which are net importers of steel slabs.