IDC moves to safeguard its Highveld position ahead of asset disposals

4th April 2016

By: Terence Creamer

Creamer Media Editor

  

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The State-owned Industrial Development Corporation (IDC) has instituted urgent court proceedings against Evraz Highveld Steel and Vanadium and the company’s joint business rescue practitioners to ensure that it is not relegated to a “concurrent creditor” in the event of liquidation.

The IDC extended a R150-million loan to the embattled steel company in June last year to help its cover working capital requirements during a business rescue process, initiated in an effort to sustain the business as a going concern and save jobs. After interest, the outstanding amount owed to IDC stood at R153.5-million on February 9.

In October, creditors voted in favour of a plan to sell the business to International Resources Limited, of Hong Kong, China. However, the transaction collapsed after conditions precedent were either not fulfilled or waived by the January 31 deadline.

The business rescue practitioners had since embarked on a process to sell individual components of the enterprise as going concerns, as well as nonproductive assets.

All 2 200 employees of the company had been retrenched and were still owed some R300-million, which would cover their February salaries, which was not paid, outstanding leave benefits and a severance package. To date, former employees had only received pension payments and had become eligible for Unemployment Insurance Fund benefits on being retrenched.

Business rescue practitioner Piers Marsden said the IDC action was not unexpected and is designed to secure the financier’s relative position when compared with other concurrent creditors, which could now only expect 10c to 15c in every rand owed to them.

He said it was common practice for a bank to ensure they have visibility on sales of assets over which they have security.

In its court application, the IDC stated that, unless urgent steps were taken to have the notarial bond “perfected”, it would suffer “immense commercial harm”.

Legal services manager Marcus Senyatsi argued in the application that its security needed to be perfected before action is taken by another creditor to attach and dispose of the assets.

However, Marsden stressed that the IDC was not contesting the current plan and would also not affect the overall “payment waterfall”, which gave preference to settling rescue costs and employee liabilities ahead of all other creditors, including the IDC.

Marsden told Engineering News Online said he remained optimistic that the plan would yield, at a minimum, the R300-million outstanding staff liability.

He indicated that, while there was still some interest in buying the business as a whole, the business rescue practitioners were also assessing which aspects of the business might be able to be sold off individually as going concerns.

Particular interest was being shown in the structural mill, which could operate using inputs sourced from other steelmakers, such as ArcelorMittal South Africa.

There was also some interest from alloy companies in Highveld’s furnaces, as well as metallurgical companies in its kilns. A skeleton staff had been retained to ensure that the assets did not degrade materially while the various options were considered.

A decision on the way forward would be made in the next month or two, Marsden indicated.

Separately, trade union Solidarity warned of an impending “catastrophe” in the Vaal Triangle unless the domestic steel industry received urgent attention.

Some import protection had been put in place in recent months and the International Trade Administration Commission of South Africa was expected to make a decision in June on further safeguard measures.

However, Solidarity deputy general secretary Marius Croucamp said that, unless there were concrete plans by the end of April, “the primary steel industry in South Africa will perish”.

“ArcelorMittal’s Vanderbijlpark plant currently employs about 5 000 permanent staff and 2 000 contractors. If this plant goes the same route as Highveld Steel, it will result in a catastrophe for the Vaal Triangle region,” Croucamp added.

Edited by Creamer Media Reporter

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