NEWS ANALYSIS: Court cases put spoke in wheel of Highveld sale

EVRAZ Highveld Steel & Vanadium’s business rescue process is being rocked by serial court actions after the company’s London-based parent, Evraz plc, filed a third urgent application to halt proceedings, after filing a second and urgent application late last month.

The first application, filed a week before the second one by wholly owned Evraz plc subsidiaries East Metals and Mastercroft, wants the High Court in Pretoria to invalidate Evraz Highveld’s rescue plan, and the October 13 creditors’ vote that adopted it, and to set the plan aside.

The joint business-rescue practitioners say the second application seeks an interdict to stop them implementing the rescue plan while the main application is pending, and is clearly designed to “frustrate” the rescue process. They filed an answering affidavit to the application this week.

They have also filed an answering affidavit to the third application, which seeks leave to serve the main application on affected persons by way of “substituted service”.

Russian-backed Evraz plc has reacted to the assertion that it is frustrating business rescue by saying “it remains fully supportive” of the process, and wants to save jobs and resume operations at Highveld.

However, it also says the business rescue practitioners have failed to “utilise abundant time and resources to search for viable solutions and to produce a sustainable plan that will lead to resuming operations at Highveld”, and that the plan fails to “reflect fair value for the interests of creditors, employees and the steel industry overall”.

“It is the considered view of Evraz that the plan currently put forward by the business-rescue practitioners gives no assurance of a successful resumption in future trading and substantive employment by Highveld. Nor does it offer creditors a better return than they are likely to receive even in a liquidation scenario, which Evraz strongly opposes,” the parent company adds.

One thing is sure, the argument and counterargument is putting a giant spoke in the wheel of the possible sale of Evraz Highveld to Hong Kong-based International Resources, which had offered to pay a nominal R350m to the steel maker’s creditors and R20m to shareholders. The group claims substantial knowledge of and has operations in global steel and vanadium markets.

Much is at stake if SA’s second-largest steel producer is allowed to fade into oblivion. Already, about half of 2,400 jobs are likely to be lost in a significant restructuring under the agreed business-rescue plan.

As part of the plan, International Resources says it will pump R1bn working capital into Highveld, and R4bn more over the next four to five years. It says this is so that it can ramp up output at the shuttered mill to pre-2008 levels within 18 months, and to 1,500 tonnes a year in the next four years.

It also aims to establish an ultrahigh-grade vanadium pentoxide production line and a 75% purity titanium slag line, and wants to build a 200MW power plant to offset the high cost and unreliable supply of electricity from Eskom.

In this context, Evraz plc — one of the largest producers of vanadium — stands to gain by letting Highveld go into liquidation. When Evraz plc bought Highveld it was forced by European Union competition authorities to divest certain vanadium assets. Liquidating Highveld would remove about 10% of vanadium supply from the global value chain. The alloy is used in steel products such as high-speed tools and jet engines.

Perhaps what makes the International Resources offer most attractive is that the company has agreed to offer shares to “suitable black economic empowerment entrepreneurs”, particularly Siyolo Energy and African Resources run by businessman Iqbal Surve. It says “the intention is that (Highveld) will have a local participation and racial profile in keeping with the policies and aspirations of the government of SA”.

But the goalposts are being substantially moved by Evraz plc’s court actions. Evraz plc has an 85% shareholding in Highveld and a creditors’ claim of R380m. It is estimated that R1.2bn is owed to Highveld’s 600 trade creditors, excluding a tax claim of about R550m invoked by the South African Revenue Service (SARS). There is also a possible R600m of environmental clean-up costs. But trade creditors, the unions and the tax man have all agreed to the sale of Highveld to International Resources as being the only likely positive outcome for the economy and the Emalahleni region, where the steel mill is located.

The 12 respondents to the applications include SARS, the Companies and Intellectual Property Commission, the National Union of Metalworkers of SA, trade union Solidarity as well as RMB Securities.

Solidarity now says it will oppose Evraz plc’s urgent application, making it the final respondent to do so. The union says Evraz plc contends that the revenue service does not have the authority to vote in favour of the business rescue plan along with other creditors. But the union says such is the tax man’s desire to save the company that it opted to be an equal creditor instead of a first beneficiary.

The urgent application is expected to be heard in the High Court in Pretoria on November 17. It appears that East Metals and Mastercroft have taken on a veritable array of powerful interests in their applications. The business rescue practitioners say Highveld’s rescue plan has received overwhelming support from creditors, labour and the government, with more than 90% of independent creditors voting in favour.

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