ArcelorMittal’s shares leapt as much as 12% on the ailing firm’s stronger position

Strengthening financial position

JUST more than two thirds of shareholders of Africa’s ailing steel giant, ArcelorMittal South Africa (Amsa), followed their rights in the group’s R4.5 billion share offer aimed at strengthening the company’s financial position, it said in a statement yesterday.

The company has previously said that about R3.2bn of the rights issue proceeds have been earmarked to settle a loan with the ArcelorMittal Group, while the remainder will aid the company’s expansion plans after being battered by softening prices and weak demand.

ArcelorMittal has suffered four years of losses amid slowing demand and significant imports from China that have weighed on the local market.

The Amsa share rose by as much as 12 percent on the JSE yesterday as the share price adjusted to the rights issue before closing up 9.68 percent at R5.89, which valued the company at R6.7bn.

Several problems

Stephen Meintjes, the head of research at Momentum SP Reid Securities, said yesterday that the under subscribed rights issue came as no surprise, because the steel giant was facing several problems.

“The outlook for the steel industry is gloomy. The government has to implement a lot of tariffs that Amsa asked for, although it has implemented a lot of the tariffs already,” said Meintjes. “The tariffs are necessary to turn the company around. Whether they are sufficient remains to be seen as global steel prices need to be stabilised,” Meintjes added.

The government increased the duty on steel wire rods and steel reinforcing bars from zero to 10 percent as of last month.

This was the second new tariff of the ten tariff applications that Amsa applied for.

In August, a 10 percent duty was introduced on galvanised steel, aluminium-zinc coated steel and colour coated steel.

In the statement yesterday, Amsa said that of the 700 million shares which were on offer, 471 million shares were applied for, including 342 million shares applied for by its parent company amounting to R2.2bn.

In addition, the parent had subscribed for a further 220 million shares amounting to R1.4bn in terms of its agreement to underwrite the rights offer, Amsa said.

Financial woes

The rights offer comes as Amsa’s financial woes have been exacerbated by cheap Chinese imports, soft metal prices and South Africa’s poor economic outlook which has seen a dwindling demand for steel.

Amsa’s chief executive Paul O’Flaherty, a former financial director at state power utility Eskom, resigned last month and was expected to step down as chief executive next month but will stay on as non-executive director.

O’Flaherty’s resignation was not very encouraging, said Meintjes. He had been working on cementing the company’s strained relations with the government.

“The good news about the rights issue is being underwritten by the parent company Mittal. It is a global player, and hopefully it will turn the company around,” said Meintjes.