Sasfin nearly sinks Evraz Highveld | Fin24

Sasfin nearly sinks Evraz Highveld

May 31 2015 18:00
Dewald van Rensburg, City Press

Johannesburg - Banking group Sasfin stands accused of almost sabotaging the business rescue of Evraz Highveld Steel and Vanadium to squeeze millions of rands out of the broke company in a matter of days – and then using its leverage to try to buy out controlling shareholder Evraz’s 85% stake for all of R1.

Sasfin has responded by saying it supported Highveld through trying times when “other financial institutions were presumably not prepared to assist the company”.

Highveld, the country’s second-largest steel group, entered business rescue in April after a long period of serious losses.

According to an affidavit filed in court this week by business-rescue practitioner Piers Marsden, the attempt to save the company had been almost completely hamstrung by Sasfin.

The drama hinges on an invoice-discounting agreement Highveld signed with Sasfin in September last year.

This agreement involves financiers buying companies’ invoices and, for a fee, providing them with the cash upfront instead of their having to wait for a month to get paid.

On April 14, the day the business rescue was announced, Sasfin wrote to cancel the agreement and claim the R100 million it was still owed.

Then, the next day, it wrote to offer rescue financing of R283 million – but with a major string attached.

Sasfin would help Highveld if 85% shareholder Evraz gave Sasfin an “irrevocable option to purchase 100% of the equity ... for a consideration of R1”.

In addition, it wanted an alternative “irrevocable right of first refusal” to buy Highveld’s assets.

The bank gave Evraz one day to accept this deal.

Unsurprisingly, the company did not sell the stake it had bought in 2008 for R6.9 billion.

After having this offer rebuffed, Sasfin slammed Highveld with penalties of R35 million related to the invoice-discounting agreement, said Marsden.

The company was forced to pay under duress to have the Sasfin agreement terminated.

The bank held Highveld’s debtors as security. Unless it ceded this security back to the steel company, it could not get the money it had been offered by the Industrial Development Corporation (IDC).

The IDC was standing ready with R150 million in financing.

Even after paying Sasfin R134 million when it went into business rescue, Highveld then got word that there was still money owed – less than R1 million.

This then further frustrated the attempt to get the much-needed IDC money, with Marsden complaining in his affidavit that his time had been consumed by the Sasfin issue when he should have been trying to save Highveld from ruin.

According to Marsden’s affidavit, Sasfin caused Highveld’s cash flow to dry up at a time when it could not fully pay its nearly 4 000 workers – threatening a major regional employer for what were, in the greater scheme of things, tiny amounts of money.

The amounts involved were small compared with the scale of Highveld and would be irrelevant “but for the stranglehold it now holds over the success of the business rescue” reads Marsden’s affidavit.

In an emailed response to City Press’ questions, Sasfin said that it had been “prepared to enter into negotiations and compromise on its claim”.

Instead, “the business-rescue practitioners were not prepared to continue negotiations”.

On the attempt to take control of Highveld from Evraz, Sasfin said it was “trying to explore other ways of assisting the company by taking a stake and injection capital into the company”.

“Sasfin has done its utmost to cooperate with Highveld during a particularly difficult time for the company to enable a satisfactory resolution in the best interests of both parties,” said the bank.

Highveld’s chairperson, Barend Petersen, tore into Sasfin’s behaviour in a letter to the bank’s CEO, Roland Sassoon, accusing the bank of trying to “opportunistically and unjustly benefit” from Highveld’s distress.

“Sasfin did not at any stage allude to any damages suffered as a consequence of the business-rescue proceedings and only claimed damages when Evraz, the 85% shareholder, declined the offer,” wrote Petersen.

This penalty is “not only grossly insensitive to the plight of breadwinners ... but also highly prejudicial to the extraordinary efforts to raise money ... to save Highveld”.

He accused the bank of unilaterally terminating the agreement to “profit to the tune of R36 million in less than a week at the expense of the future of a major employer and key economic driver in the Mpumalanga province”.

Marsden released the court papers for the application, including the series of letters between Highveld and Sasfin’s lawyers.

Speaking to City Press on Friday, Marsden declined to comment on the takeover attempt, saying it was exclusively the shareholders’ concern.

In his affidavit, however, he called it “an unfair attempt to take advantage of a company in a desperate financial plight”.

One part of the dispute had been “settled amicably out of court”, he said.

Sasfin has ceded its control over Highveld’s debts – allowing the IDC to put in the promised cash.

“This should never have gone to court; it was completely senseless litigation,” said Marsden.

Sasfin is, however, holding on to the R35 million in penalties and Highveld intends to go back to court to try to claim it.

Though Sasfin had every right to impose penalties in terms of the agreement with Highveld, this was a discretionary power that Sasfin had used in an “indefensible” way, considering the state Highveld was in, Marsden told City Press.

In the letter by Petersen contained in the court papers, he claimed that Highveld was finally turning the corner after years of losses.

In the first quarter this year it achieved its first positive earnings in a long time – about R9 million compared with a loss of R49 million in the first quarter of last year.

Petersen was in the process of buying out a part of Evraz’s 85% stake in Highveld last year, offering R440 million for 34% of the company. That deal lapsed amid the company’s fall into business rescue.

How it all unfolded

Evraz Highveld Steel and Vanadium is one of the sorrier stories of precrisis exuberance. The 60-year-old integrated steel and vanadium producer declared historic profits – and dividends – in the years after being bought out by the Russian Evraz group. But after the economic crisis, it quickly became one of the worst victims of the end of the commodities boom.

- In 2007, the Russian Evraz group controlled by oligarch Roman Abramovich bought out Anglo American’s shareholding in Highveld Steel and Vanadium for about R7 billion.

- In 2008 the company declared record results. Revenues shot up from R5 billion to R8 billion and profits doubled to R2.2 billion Evraz pocketed much of the money it had paid for Highveld when dividends totalling R3.2 billion got paid out.

- In 2009 the crisis bit. Revenues halved and the by-now renamed Evraz Highveld barely broke even. No more dividends were forthcoming as the company slipped further and further into the red. Its loss in 2012 was R1 billion.

- In 2013 Evraz announced that it was selling its shares in Highveld to a mysterious consortium trading through a shelf company called Nemascore. Cautionary announcements to shareholders about this deal kept being issued for more than a year without any apparent progress with the actual deal.

- In 2014 a new suitor made a bid for Highveld. Barend Petersen, the executive chair of De Beers Consolidated Mines, as well as Anglo American SA, Alexander Forbes and Curro Holdings, offered R440 million for 34% of the company. Peterson had himself worked as a liquidator and business-rescue practitioner and claimed he could turn Highveld around in two years.

-In April 2015 Highveld entered business rescue after achieving its first profitable quarter in recent memory.

Talk to us

Financier Sasfin took advantage of Evraz’s weakness and tried to buy the distressed firm for R1. Should bullies like this be allowed to prosper?

SMS us on 35697 using the keyword STEEL and tell us what you think. SMSes are charged at R1.50.

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