Less than a week after warning it was looking at closing down or cutting steel production from its Whyalla facility in South Australia, Arrium (ARI), the country’s number two steelmaker has revealed a bailout from an investor associated with the giant Blackstone financial group of the US – the world’s biggest fund manager.
The news sent Arrium shares soaring on the ASX yesterday to a whole 2.2 cents – up 46%. At one stage the shares were up 66.6% or 1 cent on the news.
Arrium said that GSO Capital Partners (GSO) will provide up to $US927 million ($US1.3 billion) in funding as part of a much-needed recapitalisation (really a bailout).
GSO, which is the $79 billion credit and alternative investment arm of Blackstone, will provide Arrium with a $US140 million senior secured stand-by facility and a new six-year, senior secured term loan of $US665 million.
Arrium, which has been scrambling to cut costs at its Whyalla steelworks and in its loss-making iron ore business, will also launch a renounceable pro-rate rights issue to raise $US262 million.
The last time Arrium raised cash was back in 2014 when a $754 million raising at 48 cents a share saw the share plunge sharply, leaving with big losses.
The 48 cents a share was done at a discount to the then market price of Arrium and from then on the company struggled as iron ore and then steel prices slid.
At one stage last week the company was giving the impression that because of trouble selling its Molycorp mining consumables business for an acceptable price, and a slide in steel prices late last year, it was looking at the drastic action of closing Whyalla and putting it on a care and maintenance basis.
There was also a strong suggestion in the market that the company was on its last legs and could go under.
The shares slid steady in the wake of that news to an all time low of just 1.5 cents on Friday (and an intraday low of just 1.2 cents).
Now GSO has ridden to the aid of Arrium with a deal that will no doubt come with an expensive price.
The rights issue will be fully underwritten by GSO and/or a professional underwriter such as an investment bank.
"These funds would primarily be used to retire outstanding debt of the company at the time the recapitalisation is implemented," Arrium said yesterday
"The recapitalisation plan is a result of the company’s strategic review which had the objective of achieving an appropriate structure and level of debt in a low iron ore price environment."
The company has a market value of just $64 million while the group’s debt has risen to $2 billion.
The deal with GSO will allow Arrium to keep the consumable business and provide liquidity and working capital support.
Under the terms of the deal, which is still subject to approval from Arrium’s lenders, due diligence, and other regulatory issues, Arrium will issue GSO warrants equivalent to 15% of Arrium’s issued capital.
GSO will also nominate two directors to the company’s board.
"The last eighteen months has been an extremely challenging time for the company, and the board acknowledges the loss of shareholder value during this period,” Arrium chairman Jerry Maycock said yesterday in something of an understatement.
