The Securities and Exchange Commission (SEC) requested yesterday shareholders of SET-listed G Steel Plc (GSTEL) exercise their voting rights today to consider approving the company's financial assistance from Mahachai Group.
Mahachai Group holds a 10.02% stake in G Steel.
An independent financial adviser has declared shareholders should not approve such financial assistance because Mahachai Group has conditions for G Steel to enter into an agreement to appoint Mahachai as the sole product distributor for five years, according to the SEC.
Among other conditions are G Steel being required to pay a dealer fee of 1.5% of sales to Mahachai Group.
In addition it must offer most of its manufactured products as collateral for the group.
Another condition for financial assistance is that representatives from Mahachai Group will have the authority, together with G Steel, to approve the purchase and sales process as well as payment system, which will affect G Steel's internal control system and corporate governance.
Such control may cause a conflict of interest, according to the SEC.
If G Steel shareholders were to approve such financial assistance, the company may face additional expenses that will affect the ability to turn a profit and may cause a reoccurring liquidity shortage in the future, said the SEC statement.
G Steel's board of directors, however, agreed that Mahachai Group's financial assistance, provided in 2014, enabled the company to produce hot-rolled coils after G Steel had to cease production for around two years.
Such assistance helped maintain machine quality, prevented laying off employees and allowed enough time for the company to restructure its debt.
Although the conditional financial assistance from Mahachai Group was not reasonable, it allowed the company to sustain its business and maintained its status as a SET-listed firm, subsequently allowing the company's ordinary shares and warrants to continue trading on the bourse, said the SEC statement.
The conditions for further financial assistance from Mahachai Group are a connected transaction from when G Steel entered into agreement in 2014.
Shareholder approval must reach a minimum threshold of three-quarters of total shareholders attending the meeting with voting rights, excluding shareholders who can reap benefits from equity.
