The Industrial Development Corp (IDC) of South Africa has made a R3bn offer to acquire an 80% stake in ArcelorMittal South Africa (Amsa), a struggling steel producer. According to sources, the offer was tabled in July, but its implementation has been delayed due to disagreements over the company's empowerment structure. The IDC's proposed deal would see Amsa delisted from the Johannesburg Stock Exchange (JSE), "cleaned up," and then relisted.
Amsa, South Africa's primary steel producer, has been facing significant challenges, including losses of over R5bn in the past two financial years. The company's market value has plummeted to R1.3bn, down from R56bn in 2007. The IDC's offer is aimed at protecting South Africa's vital steel manufacturing capabilities and promoting job creation. However, sources indicate that Amsa is trying to exclude its BEE partner, Likamva Resources, from the deal.
Likamva Resources holds a 17% stake in Amsa, based on a 10-year contract that expires at the end of the year. Amsa has reportedly asked the IDC for an additional R300m to stave off 300 planned job cuts. The IDC has previously provided Amsa with R1bn and R1.68bn in lifelines. The company's struggles have also led to government intervention, including a R417m grant from the temporary employee relief scheme.
The proposed deal has sparked concerns among BEE shareholders, who may vote against the deal and take legal action against Amsa. Sources suggest that Amsa's local management is delaying the announcement of the deal until December, when Likamva's contract expires, to exclude them from the transaction. This move could disadvantage 17% of Amsa's shareholders.
The IDC has stated that it remains engaged in discussions with Amsa, the ArcelorMittal Group, and government partners to find a lasting solution to the challenges facing the steelmaker. The company's CEO, Mmakgoshi Lekhethe, has emphasized the importance of a competitive steel industry for South Africa's industrialization agenda. The deal is also backed by the Department of Trade, Industry and Competition (DTIC), which is keen to protect jobs in Newcastle and Vereeniging.
As part of the proposed deal, Amsa must adhere to the Competition Commission's requirement that there will be no retrenchments. The company's long steel business, which employs 3,500 people, has been under threat, and the DTIC is keen to conclude the deal to protect these jobs. Amsa's financial struggles have continued, with a widening ebitda loss of R409m in the six months ended June.
The steel industry in South Africa is facing significant challenges, including cheap imports and rising power and transport costs. Amsa has previously closed its Saldahna plant in the Western Cape due to these factors. The company's struggles have significant implications for the country's industrialization objectives and infrastructure-build programme.
Key points
- The IDC's R3bn offer aims to acquire an 80% stake in Amsa and protect South Africa's steel manufacturing capabilities.
- Disagreements over Amsa's BEE partner, Likamva Resources, have delayed the implementation of the deal.
- The proposed deal has sparked concerns among BEE shareholders, who may take legal action against Amsa.
