Essar Steel Algoma will start searching next month for a buyer or major new investor in its Sault Ste. Marie steelmaking operation.
“We expect to begin the sale and investment solicitation process (SISP) and the search for a buyer by mid-February,” Chief Executive Officer Kalyan Ghosh says in a letter sent last week to suppliers.
“While we are hopeful that 2016 will bring improved market conditions and new opportunities, Essar Steel Algoma is contending with a tight deadline for its financial restructuring,” Ghosh says.
“A significant number of variables will have to align to attract a new investor, but the process calls for a deal to be completed and approved by August 31.”
Essar Steel Algoma is operating with US$200-million debtor-in-possession (DIP) financing that expires on September 1.
Brian Denega of Ernst & Young Inc., the court-appointed monitor, has expressed concern that the steelmaker could well run out of money before then.
“The expedited timeline to develop the SISP was a result of extensive negotiations,” Denega said in a report issued one week ago.
“An expedited timeframe is imperative as there is substantial risk that [Essar Steel Algoma and related companies] may exhaust their available liquidity under the DIP facilities before the DIP agreement expires on August 31, 2016, subject to possible extension until September 30,” the monitor said.
“This risk will be exacerbated if the North American steel market conditions continue to deteriorate,” Denega said.
Essar Steel Algoma sought protection from its creditors on November 9 under the Companies’ Creditors Arrangement Act.
The Ontario Superior Court of Justice is requiring the company to obtain court approval for “a broad sale and investment solicitation process,” by February 1.
As part of that process, Essar is currently preparing a five-year business plan.
Much of that plan will focus on the steelmaker’s raw material supply, especially iron ore pellets.
“Algoma is currently in the process of canvassing the iron ore pellet market to finalize its iron ore strategy in time to complete the materials required for the SISP,” Denega said.
“In order to meet the SISP approval deadline, [Essar Steel Algoma and related companies] with the assistance of their advisors and the monitor, will soon begin to engage with prospective interested parties to determine their level of interest in the operating assets of Algoma.”
“A key piece of information interested parties will require to evaluate Algoma’s operations is Algoma’s business plan, which in turn requires a substantial degree of certainty as to iron ore supply arrangements.”
Source:Sootoday