ESCO Reorients Strategies

The managing director of Esfahan Steel Company recently published a letter to the Securities and Exchange Organization to answer inquiries by the SEO about the money-bleeding company’s three-month track record.

Some 361,307 tons of both finished and semi-finished products, including 258,714 tons of billets, were exported by the company in Q1, up 88% year-on-year.

The official reason for the closure, according to IFB’s website, is the company's “pending annual general meeting”. However, as with many other symbols, the issue has mostly to do with opaque or unclear statistics released by the company. Answering SEO’s questions in full was ESCO’s only way to get back to trading.

The 3.3-trillion-rial ($873 million) company had forecast a 35-rial loss per share for the current fiscal year (started March 21), but ended up posting only 20 rials in losses per share by the end of the first quarter. Its current earnings per share and price/earnings ratio on IFB stand at -35 and -22 respectively.

Ahmad Sadeqi’s letter was meant to explain the measures ESCO has taken to improve its financial status and make it more transparent for SEO.

The letter eventually accomplished its goal, as the symbol reopened after more than two weeks. Investors seemed eager to get back to trading, as 115.4 million of ESCO’s shares worth $2.39 million changed hands on Tuesday, rising 2.47% to 789 rials per share.

The ticker has been on a gaining streak for six trading days in a row.

The Isfahan-based producer is Iran’s oldest steelmaker and the largest producer of structural steel. It was jointly established in 1965 by Iran and the Soviet Union’s Tyazhpromexport Company. Its steel production facilities became operational in 1972.

 Restructuring Measures

The letter first referred to the company’s debts to the government and banks. ESCO had reached a setoff agreement with the government in May to lighten its liability burden of 70.34 trillion rials ($1.86 billion) accumulated as of June 21, which had increased by 4% compared to its last fiscal year’s standing.

The agreement entailed setting off state-run Social Security Organization’s 7.6-trillion-rial ($200 million) debt to ESCO.

The steelmaker also signed an agreement with banks in March to pay a maximum of 5% of its debt and its interest up front to be granted a period of respite before spreading the remaining debt over installments reaching five years. The agreement has been made with Bank Refah Kargaran, Mellat, Pasargad and Keshavarzi.

The reduced loss per share was made possible by replacing local coal supply with cheaper foreign offerings, cutting production costs by boosting the efficiency of furnaces, reducing the furnaces’ coking coal usage, reviving an old DRI plant, halting scrap iron purchases and cutting the number of project contractors.

ESCO intends to get rid of its losses and post profits this year by selling off its non-productive assets. The company has yet to have any success in selling, however. Sadeqi predicted that to happen in the fourth quarter of the year.

The company has also changed some of its sales strategies, as evidenced in its balance sheets. It showed a rising uptrend in the first quarter, for instance, which is due to increased futures sales.

 Supplying 100,000 Tons of Rail by Yearend

ESCO will produce 100,000 tons of rail by the end of the current fiscal year (March 20, 2018) for the Ministry of Roads and Urban Development, ESCO’s deputy for sales and exports, Ehsan Dashtianeh, said.

“By the end of the current year, some 40,000 tons of rails will be produced for the Islamic Republic of Iran Railways and we are also planning to produce another 40,000 tons that will be supplied to the Construction & Infrastructure Development Company,” Dashtianeh was quoted as saying by ILNA. Dashtianeh did not mention to whom the remaining 20,000 tons will be supplied.

Construction & Infrastructure Development is a state company responsible for repair and renovation of Iranian railroads.

"At present, our main priority is to supply rail to state companies, especially for infrastructure development. However, if we do not reach an agreement with state companies, ESCO will consider other requests from domestic and exporting markets," he said.

Last November, ESCO launched a 400,000-ton per year rolling mill with the participation of the German Kuttner Company to produce rail and wide-flange beams, but it has not sold any to the national rail company yet and only some trial products have been manufactured up to now, according to S&P Global Platts.

Conformity to EU Standards Extended

ESCO has also extended its conformity to European Union’s standards by renewing its CE [Conformite Europeene] certificate, a mandatory conformity marking for certain products sold within the European Economic Area since 1985, the company’s deputy quality manager said.

“The CE marking was successfully obtained in only two days with no complications,” Morteza Shirinparvar added. “The marking’s main purpose is to indicate [ESCO’s] conformity to requirements and to provide a license to sell products in Europe.”

The letters "CE" on products signify that they have been assessed to meet high safety, health and environmental protection requirements and ready to be traded on the extended single market in the EEA, according to the European Commission’s website.

ESCO produced 522,814 tons of crude steel during the first quarter of the current fiscal year (March 21-June 21), slightly higher than last year’s similar period.

Some 361,307 tons of both finished and semi-finished products, including 258,714 tons of billets, were exported by the company in Q1, up 88% YOY, Platts reported.

ESCO aims to boost exports to 1 million tons by the fiscal 2017-18.

The company recently announced negotiations with two European companies for long-term cooperation on the production of pig iron for the European market, the company's managing director was quoted as saying by Iranian website Bourse24.

"ESCO was interested in signing a five-year contract and negotiations were ongoing," he said.