Background
Evraz Highveld is the second largest steel manufacturer in South Africa. It is the country’s only producer of heavy structural steel products and only one of five such companies in the world.
On the 13th April 2015, the Board and management advised that Evraz Highveld did not have sufficient funding to meet its financial obligations for the short term. This was as a result of historical operational and financial difficulties and extremely difficult steel and vanadium market conditions. It was resolved to place the company in Business Rescue.
Challenges
- Increasing costs of input materials (raw materials and energy) into the already energy intensive operations.
- High fixed cost base driven by high maintenance and labour costs.
- Weakening steel and vanadium markets.
- Challenges in the global steel market led to a surplus of available for sale assets in the market.
- Time constrained sales process.
- Environmental non compliance.
- Union and governmental pressures.
- European Competition Commission commitments placed on the company.
- Finding post commencement funding.
- Several litigations initiated against the company.
Solution/Strategy
- Initially an accelerated M&A process was entered into, in order to find a strategic investor.
- Cost reduction initiatives entered into, including reducing the high fixed electricity costs and down scaling operations.
- The Practitioners appointed several independent environmental specialists to evaluate and assess the potential environmental liability of Evraz Highveld.
- Initially a rotational lay off agreement was entered into with the unions and later a full retrenchment of all the staff.
- In an attempt to preserve value for Evraz Highveld, an application was submitted to the International Trade
- Administration Commission (“ITAC”) for import price protection.
- Several private and governmental entities were approached in order to obtain post commencement funding.
Results/Outcome
It is envisaged that operations will recommence in 2016 and the process is currently still underway.