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Johannesburg - Evraz Highveld Steel and Vanadium (EHSV) got its white knight this week with a little-known Hong Kong-based company offering to buy it out of business rescue and spend billions to upgrade it.
At the same time, however, it was revealed that the SA Revenue Service (Sars) is accusing the company of avoiding R400 million in tax by moving income offshore back in the good days before 2009.
If the taxman joins the creditors’ queue to claim this money, it will in effect halve the money all other creditors can expect out of a deal with the Chinese company, International Resources Limited (IRL).
The deal, however, also comes with a laundry list of conditions the Chinese want to see met by March next year – many of which are demands on the South African government to protect EHSV with funding, tariffs and compromises on settling environmental liabilities before any money changes hands.
EHSV, South Africa’s second-largest steel maker, went into business rescue in April. Since then, it has shut down its furnaces, announced the retrenchment of half its workers and started burning through its limited cash and stockpiles. IRL is offering to buy EHSV and rescue 10% of South Africa’s steel-making capacity in the process.
IRL is little known, but its chairperson, Dr Chung Hon Dak, was a guest of honour at President Jacob Zuma’s opening of a school in the Eastern Cape last month. Chung helped fund the school with a $3 million (R39.6 million) donation.
IRL’s BEE partner is Siyolo Energy and African Resources, an affiliate of Dr Iqbal Survé’s unlisted conglomerate, Sekunjalo Investment Holdings. According to Survé’s spokesperson, Awande Dlamini, Survé “is not involved with the company at all” despite being registered as the sole director.
Siyolo “trades in crude oil, gas, mining and African resources”, said Dlamini.
IRL is offering R350 million to buy out EHSV’s creditors, R35 million for the Mapochs mine that supplies it, R150 million to buy out an Industrial Development Corporation loan – and it promises to spend R4.1 billion on EHSV over five years.
EHSV’s joint business-rescue practitioners, Piers Marsden and Daniel Terblanche, released their formal business-rescue plan this week, detailing EHSV’s state of affairs – and the proposed deal.
Getting its application for a 10% tariff on structural steel products approved by March next year is a key condition for the deal to go ahead.
“Getting the tariff is absolutely part of the conditions,” Marsden told City Press.
But getting the International Trade Administration Commission to set a new tariff by March means significantly accelerating the normal process for trade protection. The recent new tariff on steel-wire products was instituted only 18 months after ArcelorMittal SA applied for it. The EHSV tariff application was published for public comment on Friday.
According to Marsden, the buyers also want government involved as both an equity and debt provider. It wants the state to come on board as a kind of guarantee that EHSV will be protected.
The single largest obstacle to getting EHSV out of business rescue in one piece may, however, be the environmental liability it faces. It is “no secret” that EHSV has been lacking in the environmentalcompliance department, says Marsden.
He and Terblanche are negotiating a deal with the department of environmental affairs to set up a ring-fenced fund for rehabilitation provisions.
In terms of meeting the March deadline, this was probably the most challenging part of the deal, he told City Press.
EHSV also needs to get the European Commission to waive a condition it had attached to the Russian Evraz group’s original acquisition of Highveld in 2007 – and it needs the IDC to be extra gentle with reclaiming a R150 million loan it granted to EHSV to keep it afloat this year.
The plan contains a 14-page list of creditors, altogether claiming well above R1 billion.
There is also an outstanding Eskom power bill of R220 million. Evraz itself is owed about R380 million from a shareholder loan.
At best, creditors will get 29c of every rand. If Sars goes ahead and claims its R400 million, they will probably get 16c of every rand, according to the plan’s projections.
Creditors will vote on the plan later this month, but their choice is in effect between a long liquidation with little prospect of recovering their money – or taking IRL’s offer and hopefully getting as much as 29% of their money back.
The process to retrench 1 089 of EHSV’s 2 242 workers is, however, going ahead, says Marsden.
As things stand, EHSV workers are on a “rotational lay-off” system, which sees them receiving a portion of their normal wages while the steelworks lie idle.
