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Highveld’s future under spotlight as Evraz questions bidder's capacity to deliver

10th November 2015

By: Terence Creamer

Creamer Media Editor

  

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The battle over the future of Evraz Highveld Steel & Vanadium (Highveld) has intensified with Evraz seeking to urgently interdict the business rescue process, alleging that shareholder and creditor rights have been violated. The business rescue practitioners (BRP), on the other hand, contend that Evraz is intent on frustrating the only sale process that has any chance of being consummated.

The BRPs have recommended that Highveld be sold to International Resources Limited (IRL), of China – a plan that has found favour with both government and labour.

The plan has also been approved by creditors, following a vote, which took place on October 13. But two Evraz-linked companies, East Metals and Mastercroft, have approached the High Court to have the plan declared invalid and the creditors vote set aside. They have subsequently also sought to urgently interdict the BRPs from continuing with processes related to the rescue and this application is to be heard on November 19.

Evraz alleges material nondisclosure by the BRPs ahead of the creditors vote, which affected the outcome. The alleged nondisclosure relates to an additional claim submitted on the day of the vote by the South African Revenue Service (SARS), altering the voting dynamics and most probably the outcome.

The SARS claim – which the BPRs insist they have continually flagged as a possibility throughout the process and in the actual September 16 plan – increased the overall creditor debt to nearly R2.4-billion from around R1.2-billion.

Evraz corporate communications VP Vsevolod Sementsov insists that the Russian steel and vanadium group remains supportive of business rescue, highlighting that it supported the board’s decision to file for rescue in April, following years of losses – Highveld has been lossmaking since 2010.

“We supported this decision and we still believe that this is the best way forward for Highveld Steel in the current situation to stabilise the company and save jobs.”

But Sementsov tells Engineering News Online that Evraz “does not support the business rescue plan published by the BRPs, because they failed to present any proof of the plan’s sustainability”.

“[The] BRPs several times extended the business rescue plan preparation explaining it by a large number of potential bidders, but in the end presented only one and now they are irrationally driven to IRL as a preferred bidder.”

There is, he argues, limited information about IRL’s experience in producing, selling or buying steel and vanadium. “Apart from a deposit of $10-million and a promise to invest billions of rands into the business, IRL provided no financial guarantees, or proof of funding for the implementation of the promises given,” Sementsov says.

The court applications, he adds, are based on a fear that Highveld runs a serious risk of being liquidated as a direct result of the plan’s deficiencies. “The well-being of all stakeholders is being challenged. Employees, creditors and suppliers are at risk . . . [because] if IRL does not succeed in meeting the market challenges – and we have no proof that it has enough competence and experience to do that – Highveld may be liquidated and sold off.”

But BRP Piers Marsden tells Engineering News Online that progress is being made in addressing all the outstanding conditions and that he is “more confident than ever of the IRL deal being concluded” by the end of January.

He says an interdict could seriously undermine progress, but will not necessarily prove fatal, as it could accelerate the case being heard on its merits, “and we are confident we have a strong case”.

Marsden also stresses that the practitioners have not worked in isolation when developing the plan and that the sale process was pursued with the blessing of Evraz, whose advisers were “intimately involved” in setting the framework.

“In fact, Evraz appointed Standard Bank as their local advisers on the matter . . . and Standard Bank actually prepared the information memorandum that went through to bidders and set up the process letter outlining the financial hurdles and timing for the offer.”

Marsden admits that, at one point, up to 27 companies expressed an interest in Highveld. But “in terms of the process we designed with Evraz”, only three bidders submitted offers and only IRL met the $10-million financial stipulation. “It’s, therefore, not correct to say that there were a large number of bidders.”

Marsden believes Evraz is intent on ensuring a winding down of the assets, possibly to strengthen the group’s long-term position in the vanadium market.

Sementsov strenuously denies this speculation, however, arguing that Highveld is not one of the group’s largest vanadium assets. He also points out that even in the absence of Highveld’s vanadium output, prices have remained depressed.

Meanwhile, Highveld’s has ceased production and is continuing with consultations with its remaining employees in a bid to avert forced retrenchments.

Following a voluntary process, Highveld headcount has fallen from around 2 250 to 1 980 employees, with 718 of those considered redundant.

CEO Johan Burger says approvals are being sought to ensure that the 718 employees are incorporated into a training layoff scheme with a monthly remuneration of R9 300 for six months. Should Highveld resume operations, it is possible that some of the employees could be reabsorbed into the operation.

However, Burger stresses that the approvals needed to be followed swiftly by the flow of cash from the training layoff scheme as Highveld has the ability to continue paying the 718 employees only until the end of November.

Edited by Creamer Media Reporter

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