The future of Arrium and its steelmaking business and iron ore operations in South Australia is up in the air after the company’s banks rejected a near $1 billion recapitalisation offer from an arm of the giant Blackstone financial group.
Arrium shares were suspended at the company’s request ahead of the statement from the banks, and a recapitalisation plan from the company which could come by April 6.
In that statement the banks rejected the $US927 million ($A1.21 billion) bailout from GSO Capital, which is a venture capital investor linked to Blackstone.
Arrium told the market in a letter the trading halt was requested “pending the release of an announcement updating the market in relation to the recapitalisation of Arrium and its discussions with its lenders (banks and noteholders) following the lenders’ rejection of the recapitalisation plan for Arrium involving GSO Capital Partners".
The GSO deal would have left Arrium’s 20-plus lenders with about 55 cents in the dollar on their huge debt package which and was not expected to be approved by the banks, which include our big four banks.
The 20-plus banking syndicate includes Japanese banks Bank of Tokyo-Mitsubushi UFJ and Mizuho, HSBC and Spanish bank Banco Bilbao Vizcaya Argentaria. The vote to spurn the GSO proposal was almost universal.
Almost two weeks ago the ANZ spooked the market by lifting its bad debt provisions by $100 million due to “a small number of Australian and multinational resources related exposures”. It has been reported that Arrium is one of these.
The trading halt is expected to stay in place until either open of trading on April 6 or an announcement is made in relation to a recapitalisation plan.
Besides the weakly performing steelmaking and iron ore mining business, Arrium owns and operates a global mining consumables business, which supplies grinding media to mining companies.
That business is the only real cash generator to service Arrium’s debts and support its steel and iron ore mining operations.
The company has been cutting jobs for two years and more and has a review of its steel business underway which could result in the Whyalla plant being closed or further cut back. That would mean significant job losses in South Australia.
Coming in an election year, a decision to shut or save Whyalla could play a major role in the election in either early July or September
Arrium shares didn’t trade yesterday. They closed at 2.2 cents last Friday, which is a big signal the market thinks it is cactus.
The GSO plan was announced on February 22. Six days before that the shares peaked at 6.3 cents.
They have been falling ever since, except for a brief jump to 3.1 cents on March 8.
