Struggling steel giant needs to forge BEE deal
ArcelorMittal SA lacks black partners and requires government help over cheap imports
STEEL magnate Lakshmi Mittal could soon sell a stake in the country’s biggest steel company, ArcelorMittal South Africa, to black investors, but he needs a favour from the government to make sure the struggling local subsidiary survives.
The steelmaker has not made a profit in five years and needs protection against cheap Chinese imports and an agreement on local steel pricing. In return for protection, the government would want a commitment from ArcelorMittal SA on black economic empowerment (BEE). Despite past efforts, the firm has never had a black partner.
“We are at a stage where the major shareholder understands that we need an ownership deal and we are putting plans in place to do one. However, you need an industry that you can invest in,” ArcelorMittal SA CEO Paul O’Flaherty said.
Five consortiums, according to industry insiders, are hoping to secure a 10% stake in ArcelorMittal SA, whose market cap sits at just over R5.3-billion, after its share price dropped almost 96% from its record high reached in June 2008.
The Likamva consortium, headed by former investment banker and now entrepreneur Noluthando Gosa, has been working on securing a stake in the steel producer for the past three years, but has been fobbed off previously by the Luxembourg head office, according to one of her partners, Warren Wheatley.
But recent meetings between the government, Mittal and the company mean a sale might well be on the table soon.
The consortium includes other prominent businesspeople such as international adviser to Goldman Sachs Leslie Maasdorp, and Wheatley, who recently bought a R2.7-billion empowerment stake in Capitec.
Gosa said she would not want to speculate on whether there was an option to buy a stake in ArcelorMittal SA.
But, she said, she was passionate about an industrialisation drive and the creation of jobs in South Africa, and felt that the steel industry would form an important part of that.
“I am a firm believer that South Africa is still in the industrialisation phase in its development cycle, which is critical for development and, importantly, job creation.”
In South Africa, if you looked at the performance of steel companies, the steel industry was in a difficult cycle, she said. However, with co-operation among South African stakeholders and the implementation of the National Development Plan, “we are optimistic that the cycle will turn”. A long-term view was required, which “is in essence the foundation of our approach to industrialisation”, she said.
Gosa helped with the drafting of the National Development Plan, which has a strong focus on infrastructure development and job creation.
The last time ArcelorMittal SA tried to bring a black partner on board was in 2010, in a R9.1billion empowerment deal with Imperial Crown Trading, which included President Jacob Zuma’s son, Duduzane Zuma, and members of the Gupta family. But the deal fell apart.
Since then, the steel producer has lost more than two-thirds of its value, shrinking from a R35billion company in 2010 to its current valuation.
ArcelorMittal SA’s biggest shareholders include the Luxembourg-based ArcelorMittal, which holds almost 47%, the Industrial Development Corporation (IDC), with 7.9%, and the Public Investment Corporation (PIC), which holds 5.3%, according to data from Bloomberg.
Considering the stakes held by the state-owned IDC and PIC, any black partner would have to take at least 10% to 12% for the company to achieve the 26% empowerment ownership required by legislation.
The government recently said it would make an initial R1billion available to develop black industrialists in the country. Buying into a steel company such as ArcelorMittal SA could be a step in achieving that goal.
prinslool@sundaytimes.co.za