ArcelorMittal to take empowerment plunge

20 September 2015 - 02:00 By LONI PRINSLOO


South Africa's largest steel-maker, ArcelorMittal SA, will tomorrow announce a black empowerment deal, estimated at between R1.5-billion and R2-billion. The deal will be one part of a two-pronged strategy to secure the company's black economic empowerment status, as it would hand over about 5% of its share scheme to employees, skewed in favour of black and female employees.The company is also in the process of negotiating with potential black investors, to take a further stake of up to 21% to ensure it gets its BEE status - currently at 0% - in line with South African law.ArcelorMittal SA is majority-owned by Indian steel magnate Lakshmi Mittal, who had meetings with the South African government earlier this year and agreed to reduce his stake in the company to accommodate a BEE deal.About five groupings of black investors were being considered, but industry insiders said only two groups were now in the running.story_article_left1The final decision is expected to be made by November. But the official announcement would be made only by February next year.Investec is set to facilitate the massive transaction.ArcelorMittal SA lost out when a R9.1-billion empowerment deal in 2010 with Imperial Crown Trading, which included President Jacob Zuma's son, Duduzane Zuma, and members of the Gupta family, fell apart.The steel industry has historically been one of the least transformed industries in South Africa, and has come under increasing pressure from the South African government to deal with its empowerment issues.The government, for its part, has thrown the struggling sector a lifeline by agreeing to implement import duties to provide some protection against cheap Chinese steel imports.A 10% duty on certain products had been agreed on, and the industry is hoping that this will be expanded to cover all, or most, steel products produced in the country, in terms of additional applications brought by industry players.The dire state of the steel industry is evident in the crisis at South Africa's second-largest steel producer, Evraz Highveld, which went into business rescue four months ago.Evraz Highveld, owned by Russian billionaire Roman Abramovich - also the owner of Chelsea football club - this week said Chinese company International Resources had made an offer to save the company from business rescue and imminent liquidation.This would be the second attempt by Hong Kong investors to buy Evraz Highveld, but Abramovich was not prepared the first time around to let the company go as he wanted the money he had put into it returned.He reportedly invested an initial $3-billion in the company in 2006, when he bought a majority stake from Anglo American.But with the current market conditions, the focus changed to saving the beleaguered steel company rather than concluding a purely commercial deal.Creditors and shareholders of Evraz Highveld will have a week to decide on the deal and will vote next week Monday.If the plan gets the thumbs-up, International Resources will pump R5-billion in working capital into Evraz Highveld over the next five years.The cash injection could see Evraz Highveld ramp up production to pre-2008 levels within 18-months, depending on demand fundamentals.story_article_right2Industry sources said the deal would be backed by Iqbal Survé's Sekunjalo, which would also be the preferred black partner if the deal goes through.The South African government has made it known that reindustrialisation of the manufacturing sector is considered vital to the country's future economic direction and that it wants black people to be involved in the reindustrialisation drive.The government has said it wants to create 100 new black industrialists.Black ownership in the steel industry would be central to achieving this aim, yet it is still uncertain where the money would come from or how the funding would be set up.One of the only steel companies with significant black participation and ownership is a smaller player, Scaw Metals, which has a level three BEE rating, with the state-owned Industrial Development Corporation owning the majority share.Scaw Metals CEO Markus Hannemann said this week it was important to regain South Africa's competitiveness in the manufacture of steel products in the country.He said besides asking for import tariffs, Scaw Metals had also been talking to the government about banning the export of scrap metal to ensure that quality scrap stayed in the country at affordable prices. This would provide relief to local mini-mills and foundries.The steel industry as a whole has also been calling on the government to bolster its localisation policy - to ensure local products are used for local infrastructure projects rather than exported.prinslool@sundaytimes.co.za

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