S&P rates Megasteel notes B+

Standard & Poor's said it assigned its B+ corporate credit rating to Megasteel Sdn. Bhd. of Malaysia and a B+ rating to the proposed senior secured notes of up to $600 million due 2010 and 2015 to be issued by Megasteel Harta (Labuan) Ltd., a special-purpose financing vehicle wholly owned by Megasteel.

The outlook is stable.

Megasteel plans to use about $400 million of the issue proceeds to refinance its existing bank debt and the remaining for a "debottlenecking" program over the next two years.

S&P said the rating reflects Megasteel's robust market position, steady domestic steel demand, strong regulatory protection and expected improvement in cost position after completing a plant used to produce direct reduced iron.

The rating also reflects the company's heightened financial risk associated with the "debottlenecking" program, affiliation to parent company Lion Corp. Group - whose financial performance deteriorated sharply after the 1997 to 1998 Asian financial crisis - inherent industry risk due to the cyclical and volatile price of steel, site concentration risk and lack of product diversity, the agency said.

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