A refinancing plan for staggering steelmaker, Arrium could be revealed today, along with the board and senior managers falling on their swords to assuage lenders upset by the way the company has sought a near billion dollar financing package from GSO – the credit arm of Blackstone, without telling the banks.
The offer of corporate heads on a stick, so to speak, will be made to try and prevent the company being placed in administration, a move that could trigger the slide into liquidation and heavy damage to the steel industry and the city of Whyalla.
Extra finance has been offered by three of the country’s big four banks on the condition the company goes into voluntary administration.
Arrium shares closed at 2.2 cents last Friday – a good measure of how hopeless the market think’s the company’s outlook is.
Fairfax Media reported this morning “While the board was preparing for tense negotiations with lenders, hundreds of unionists, workers and concerned local residents marched through the streets in Whyalla chanting “Save Our Steel” ahead of the Senate inquiry into the future of the steel industry.”
On Monday it was revealed that the 35 banks and private debt holders had rejected GSO’s offer which would have given the banks and debt holders 55 cents in the dollar on around $2.8 billion in debts. That of course means an uncomfortable 45 cents in the dollar in losses.
Fairfax Media reported that ANZ, Westpac, Commonwealth Bank and NAB had agreed to lend the company a further $400 million on the voluntary administration condition. This new debt would put the four Australian banks at the top of the creditors ranking (ie with better security).
Whyalla is a regional city of 22,000 and if the steelworks is closed or mothballed (as Arrium’s review, announced in February) suggests it will have a knock-on impact, which will damage the struggling steel and mining town. Already job losses at the Whyalla Steel works, cuts to wages (with more planned,)and the closure of one of the company’s iron ore mining areas, have carved millions of dollars a year of income from the city.
The South Australian government has tried to help, but doesn’t quite understand why Arrium is in trouble fromweak steel prices and demand and especially the plunge in global iron ore prices because of low demand and oversupply.
South Australian Premier Jay Weatherill is in China and yesterday signed a deal in Beijing, together with iron ore hopeful Iron Road, which is trying to develop a $4 billion iron ore mine on the Eyre Peninsula, south of Whyalla.
Iron Road signed an agreement with the construction arm of the China Railway Group, the largest rail engineering firm in China, which will provide consultancy services under a 12-month exclusivity agreement as Iron Road tries to finalise equity and debt financing. The Chinese company expects to make a direct equity investment of up to 15%.
Why would anyone finance a new iron ore mine is beyond me, and probably beyond the thinking of most global banks.
