EVRAZ Highveld Steel and Vanadium has taken another potentially giant financial blow amid the winding down of the defunct steel maker over three years. This means creditors of what was once SA’s second-largest steel producer will possibly see a massive dilution of monies owed to them.
Business practitioners for the Russian-backed group have applied to the High Court in Johannesburg to cancel obligations under a gas-supply agreement between Evraz Highveld and global French gas supplier Air Liquide over a period of 20 years. The application will be heard on September 13.
Air Liquide has opposed the application and will file an answering affidavit. The French group has stated through Werksmans Attorneys that it would suffer damages of at least R1.4bn, as the contract would not run its full term.
Air Liquide on Monday did not respond to queries. But Evraz Highveld business-rescue practitioner Piers Marsden said earlier that it "cannot afford the fixed cost" of the contract.
In July, Evraz Highveld suspended (under section 136(2) of the Companies Act) minimum payment to Air Liquide in terms of a take-or-pay supply agreement, allowing business rescuers to apply to court for the cancellation of the obligations.
Evraz Highveld shut down steel production in July 2015. Since then, it has retrenched 3,700 employees, including contractors, as part of the business rescue. This has affected the livelihoods of about 20,000 people, according to court papers.
Marsden said the company believed Air Liquide’s claims did not exceed a maximum of R50m — "less than that even". But he acknowledged that Evraz Highveld was required to pay a minimum of R7.3m a month to Air Liquide and to Eskom in relation to the gas supply deal. The "unlikely" effect of Air Liquide’s claim would be a reduction in payouts to creditors.
The steel producer, once a cornerstone of the economy of Emalahleni, already faces claims from creditors, and possibly the South African Revenue Service, of at least R2bn.
This has now potentially risen another R1.4bn making outstanding claims against the group R3.4bn, including an initial business-rescue bridging loan of R150m put up by the Industrial Development Corporation.
It excludes R443m in holding costs of assets to be sold during the wind-down, and unpaid salaries and retrenchment claims exceeding R328m. It also does not include millions of rand a month in electricity charges still being paid, according to Eskom contracts linked to the Air Liquide contract.
In 2011, Evraz Highveld signed a contract with Air Liquide for the daily supply of 770 tonnes of oxygen, nitrogen and argon for its steel and vanadium making processes.
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