South Africa’s top development finance institution is working with financial advisers on a possible bid of about R8.5-billion for control of ArcelorMittal’s business in the country, people familiar with the situation said.

If successful, the bid considered by the Industrial Development Corporation (IDC), which would include taking on debt, would end almost two years of negotiations with the State firm, the government’s trade and industry department and the global steelmaker.

It could also pave the way for the entry of other international steel companies as the IDC plans to seek strategic investors to run the plants, the people said, asking not to be identified because the talks are private.

ArcelorMittal South Africa (AMSA's) November 2023 announcement that it planned to shut two steel mills that produce grades that are crucial to the country’s key automotive and mining industries sparked the talks. Those facilities — Newcastle and Vereeniging — employ about 3 500 people, while about 100 000 more work at their suppliers or customers.

The bid, the IDC would mostly fund, would mainly repay a loan extended by ArcelorMittal to its South African unit and would also include a cash component, two of the people said. The IDC, which is the biggest shareholder in the local steelmaker known as Amsa after its parent, signed a six-month pact with the company to conduct due diligence on the business. That expires on Tuesday.

MILLS, MINES
No final decisions have been made and a transaction may not be concluded, said the people. Still, one of them said, ArcelorMittal is likely to accept an offer of that size.

AMSA declined to comment. The IDC did the same but added that it’s committed to safeguarding South Africa’s steel sector.

In addition to the so-called long-steel plants it may close, Amsa operates a flat-steel plant, producing sheets and other products used in manufacturing and construction in Vanderbijlpark, south of Johannesburg. It also owns idled facilities in Pretoria, the capital, and in Saldanha, on the west coast, as well as a shuttered iron-ore mine that could be reopened.

The company has attributed its decision to close the steel mills to high power prices, erratic rail service, low-priced imports and a government policy that gives local competitors a discount on their raw material, steel scrap.

A number of companies have approached the IDC, proposing to invest in all of the business alongside the state company or forming joint ventures to run some of the plants, according to the people.

“Should IDC be able to reach an in-principle agreement for a potential transaction, we will, based on guidance from our advisers, embark on a process of introducing potential” strategic equity partners into Amsa, the IDC wrote in a Sept. 12 letter to one potential partner, Networth Investments Ltd. “We have been approached by various parties for potential partnerships.”

Harold Vermaak, the chief executive officer of Networth, confirmed the correspondence and the approach. In an earlier letter to the IDC, he detailed an offer that would see his company, which has made repeated unsuccessful offers for Amsa and its assets, repay the IDC for a controlling stake over five years.

AMSA, formerly known as Iscor, was acquired by Indian billionaire Lakshmi Mittal’s Mittal Steel Co in 2003. Mittal in 2006 combined with Arcelor to form ArcelorMittal.

The company’s stock has declined 13% this year in Johannesburg to R1.16, giving it a market value of R1.32-billion. That compares with a peak of 116 billion rand in 2008. In its most recent financial year, revenue was almost R40-billion.