The Industrial Development Corporation (IDC) will have to exercise some patience if it is to recoup the R2bn it lent struggling steel producer ArcelorMittal SA (Amsa) to keep its long steel business afloat.
This is after Amsa said it will not be in a position to repay the loan for the “foreseeable future”, adding complication to the due process the IDC has embarked on, the outcome of which is critical to Amsa’s survival, particularly its long steel business.
The state-owned IDC has over the past year extended generous loans to Amsa to keep it afloat, with the latest coming in March via a R1.68bn facility that enabled the group to defer the closure of its long steel plants in Newcastle, Vereeniging and Mpumalanga, a move that would have led to 3,500 job losses.
However, Amsa which last week reported a loss of R1bn in the six months to end-June, said it was not in a position to repay the IDC loans.
“The group will not repay the funding to the IDC in the foreseeable future based on the longs business remaining in a negative net asset position with negative earnings before interest, tax, depreciation and amortisation (ebitda) and no free cash flow available to repay the facility,” a note in the group’s financial statements reads.
Amsa and the IDC are exploring options to avoid the wind-down of the longs business, with the steel producer saying if the IDC due diligence process does not yield positive results, it will wind down the long steel business by the end of next month.
It said its self-help plan will also include disposing of noncore assets, plant and equipment and property including Saldanha Steel and ArcelorMittal Rail and Structures (Amras), saying it would use the proceeds from the sales to reduce debt levels and invest in the flat steel business.
Long steel products include rebar, wire rod, merchant bars, rails and sections. The long steel business constitutes about half of Amsa’s business, but has racked up losses of more than R1.5bn since 2023.
Winding down the longs business will have profound effects on suppliers, communities and municipalities in KwaZulu-Natal, Gauteng and Mpumalanga. Newcastle accounted for 34% (more than R10bn) of total group procurement in 2023. Amras is the sole producer of mainline rail in Sub-Saharan Africa.
The outlook for the longs business looks dire. The group’s management forecasts indicate that current liabilities will exceed existing assets by R663m at the end of this year, with the deficit set to widen to R3.96bn next year and R5.87bn in 2027.
Amsa already constitutes a sizeable portion of the IDC’s non-performing loans, which stand at R17bn. The entity told parliament last month that its impairments are “lumpy”, with 50% of non-performing loans linked to just three clients, including Amsa.
The entity said it supports Amsa for developmental reasons, specifically to maintain SA’s industrial capacity.
Amsa believes its flat steel business, which produces hot rolled coil, plate and related products, is a more viable core of the group. The IDC is one of Amsa’s largest shareholders after the Mittal family.
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