Steel producer ArcelorMittal South Africa (AMSA) announced on Monday that it intended to sell its 50% indirect interest in steel trading and shipping business Macsteel International (MIHBV) to a subsidiary of Macsteel Holdings (MacHold) for $220-million, or around R2.8-billion.
The proposed transaction, which is subject to several conditions, will be consummated through a sale of shares agreement that could be finalised by July 1.
One of the conditions includes AMSA and MIHBV entering into a four-year marketing agreement following the transaction.
MIHBV is held 50% by MacHold and 50% by MSSA Investments (MSSA), a wholly owned subsidiary of AMSA. The proposed transaction would be implemented through a sale, by AMSA, of its 100% interest in MSSA to a MacHold subsidiary.
AMSA has been hinting to a sale of MIHBV for several months, owing to balance-sheet pressures at the JSE-listed company, which has failed to deliver a profit since 2010.
Last year, the JSE-listed steelmaker declared a headline loss of R2.52-billion for the year to December 31, 2017, having reported a loss of R2.59-billion in 2016.
During 2017, AMSA’s net borrowings also surged to R3.2-billion from R290-million in the previous year.
AMSA CEO Kobus Verster said the proceeds of the sale would “significantly strengthen” the group’s balance sheet and would be used to fund working capital requirements and investments in the operating businesses.
Verster noted that, while most of the steel traded through MIHBV had initially been sourced from AMSA, the South African steelmaker currently supplied less than 20% of the total tonnage traded and less than 2% of volumes shipped by the JV.
“It is for this reason that the investment is no longer considered to be a core asset and we have decided to dispose of our interest.”
AMSA is also assessing prospects for the sale of other noncore assets, including Consolidated Wire Industries. However, it has no intention of exiting its core steelmaking operations at Vanderbijlpark, Newcastle and Saldanha Bay.
Last year, the company initiated discussion with its employees in relation to the redeployment of some staff from lossmaking operations to other parts of the business. The company employs around 13 000 people.