A South African state development bank is considering taking a majority stake in the local unit of ArcelorMittal SA as it tries to halt the planned closure of two steel mills crucial to the nation\u2019s manufacturing sector.<\/p>\n\n\n\n
The Industrial Development Corp., which already holds 8.2% of ArcelorMittal South Africa Ltd., is willing to inject more capital into the struggling company in exchange for boosting its holding, according to people familiar with the matter who asked not to be identified because the plans are at an early stage and not yet public.<\/p>\n\n\n\n
The IDC\u2019s plan would include a later sale to strategic investors, according to the people.<\/p>\n\n\n\n
ArcelorMittal South Africa, known as Amsa, said it hasn\u2019t yet received a bona-fide offer from any potential bidder that requires communication with shareholders. The IDC declined to comment on the matter.<\/p>\n\n\n\n
The lender and the country\u2019s trade and industry department have engaged in talks with Amsa since the company said in January it would go ahead with previously shelved plans to close mills in the towns of Newcastle and Vereeniging, costing about 3,500 jobs.<\/p>\n\n\n\n
Those plants, which produce so-called long products, also supply grades of steel crucial to the country\u2019s automotive, mining equipment and construction sectors that local rivals can\u2019t currently make.\u00a0<\/p>\n\n\n\n
Amsa has said that the mills are unviable because of a flood of cheap imports, surging electricity costs, erratic rail services and government regulations that discount the scrap metal that smaller local rivals use to make steel. Amsa mills iron ore rather than scrap.<\/p>\n\n\n\n
In response, the government has initiated a review of import tariffs on steel products and, on 19 March, said it approved R417 million ($23 million) from the state-run Unemployment Insurance Fund to \u201csustain\u201d 2,982 of the mills\u2019 3,500 employees over the next 12 months.\u00a0<\/p>\n\n\n\n
The IDC, which paid Amsa more than R1.38 billion in support in June and February, may offer a little more money to temporarily keep the mills open, Toby Chance, a lawmaker who sits on a parliamentary committee that oversees trade matters, said in an interview.\u00a0<\/p>\n\n\n\n
An interim announcement may be made to keep the mills running temporarily while further talks take place, the people said.<\/p>\n\n\n\n
The lender carried out a similar plan when it bought Scaw Metals from Anglo American Plc for 3.4 billion rand more than a decade ago to secure the local steel supplier\u2019s future. <\/p>\n\n\n\n
Following that, the IDC unbundled and restructured the business, selling its parts to strategic partners. \u00a0<\/p>\n\n\n\n
Amsa has engaged Investec Ltd. to sell \u201ccertain non-core and non-strategic land assets,\u201d but not the Newcastle plant, the lender said in response to questions.<\/p>\n\n\n\n
Amsa\u2019s announcement of its plan to close the steel plants has prompted a number of offers for the mills and the company, but none so far have been deemed credible enough to announce to shareholders, the producer said.<\/p>\n\n\n\n
Networth Investments approached Amsa\u2019s parent, Luxembourg-based ArcelorMittal, in November and the local unit in February about buying either a controlling stake or all of the South African company, Networth Chief Executive Officer Harold Vermaak said.\u00a0<\/p>\n\n\n\n
It\u2019s now planning a formal offer with the IDC\u2019s support at about the company\u2019s current share price, he said. <\/p>\n\n\n\n
Shares of Amsa, which has a market value of about R1.5 billion and annual sales of almost R40 billion, have plunged 98% in Johannesburg over the past two decades.\u00a0<\/p>\n\n\n\n
Vermaak said his company, which has previously made bids for Amsa or its plants, could make the operations profitable by cutting input costs and boosting exports. He didn\u2019t give precise details.<\/p>\n\n\n\n
\u201cWhat was received was correspondence that did not constitute an offer,\u201d Amsa said. <\/p>\n\n\n\n
\u201cThis correspondence amounted to a vague plan indicating Networth\u2019s claimed intentions, which was overly simplistic, based on unrealistic assumptions and with no credible financing.\u201d<\/p>\n\n\n\n
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