By John Helmer in Moscow
Alexei Mordashov, controlling shareholder and chief executive of the Moscow-based Severstal group, has set a sale price on the group’s North American assets of $3.6 billion, according to a source close to the company. Lazard Freres is the investment banking firm advising Mordashov on the deal.
The disclosure comes after press leaks of talks Severstal North America (SNA) has been holding with potential buyers. These have included talks with AK Steel for the Warren, Ohio, mill; with Nucor for the SeverCorr minimill in Mississippi; and with CSN, Essar, and ArcelorMittal.
Severstal is refusing to comment on the negotiations, but bank sources have been speaking to the industry press. They are reported as telling The Deal Reporter early this month that “other than its SeverCorr mini-mill …Severstal’s North American assets are considered nothing spectacular, and the company is likely to struggle to find an entity willing to take on the entire portfolio in the current climate.”
CRU Steel News has been told that the only interest so far shown in Mordashov’s sell-off proposal has come from Nucor. The source claims that Nucor’s interest is limited to SeverCorr. But Mordashov has been told that no deal is possible now, and that the price must come down to cost. No other steelmill in the Severstal North America (SNA) portfolio has attracted buying interest to date, the source claims.
Severstal’s financial reports indicate that atotal of about $1.9 billion in debt matures this year, and must either be repaid or refinanced. In February already, the group repaid $325 million in Eurobond obligations; and must repay another $480 million by year’s end. In 2010 Severstal will have another $900 million in debt repayments. Then between 2010 and 2013, about $4 billion in debt will reportedly fall due.
Although Severstal has indicated confidence it has enough cash on hand, and current cashflow, to handle this year’s repayments, the Eurobond loan agreements which Severstal signed are putting pressure on Mordashov to remove losses from his current balance-sheet by sellingloss-making SNA mills. At the same time, the loan covenants sharply curtail the company’s refinancing and restructuring options.
The covenants, which have been disclosed to CRU Steel News, say that Severstal may not reorganize its businesses, or sell off core assets, such as the SNA mills, if the deal value exceeds $150 million, and if it is in violation of the covenants. “Severstal shall not and shall ensure that its Material Subsidiaries do not (in each case disregarding sales of stock in trade on an arm’s-length basis in the ordinary course of business and assignments of or other arrangements over the rights or revenues arising from any Steel or Ferrous Metal Contract) sell, lease, transfer or otherwise dispose of, to a person other than a Subsidiary or Severstal, as the case may be, by one or more transactions or series of transactions (whether related or not), the whole or any part of its revenues or its assets which have the aggregate value in excess of U.S.$150,000,000 or the equivalent thereof in any 12 month period, if such sale, lease, transfer or disposal has a Material Adverse Effect.
A further covenant, attached to the loan agreement for 2014, provides that “Severstal shall not, at any time, permit Consolidated Net Indebtedness to exceed 75 per cent of Consolidated Net Worth.”
Problems are also brewingwith SNA’s unions. Ed Machingo, president of United Steelworkers Local 1375 at the Warren mill, has been reported as telling a US newspaper that he thinks Severstal intends to reopen and operate the mill, but would listen to purchase offers from other companies.
Union members at the SNA plant at Dearborn, Michigan, formerly Rouge, have filed claims for recovery of several dozen million dollars in productivity payments which, they claim, were promised under the union’s labour contract, and listed in Severstal financial reports as having already been paid.
Severstal shares were down 4% in Thursday trading on the Moscow stock market.