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Agreement between Iscor and IDC

Agreement between Iscor and IDC. Structure of Kumba unbundling Integration of Saldanha Rights issue in Iscor post unbundling. 26 September 2001. Agenda. Introduction Ownership of iron ore Integration of Saldanha Final IDC Holdings Iscor rights issue Rationale for the rights issue

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Agreement between Iscor and IDC

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  1. Agreement between Iscor and IDC • Structure of Kumba unbundling • Integration of Saldanha • Rights issue in Iscor post unbundling 26 September 2001

  2. Agenda • Introduction • Ownership of iron ore • Integration of Saldanha • Final IDC Holdings • Iscor rights issue • Rationale for the rights issue • Debt allocation • Other issues • Timetable and conditions precedent • Conclusion

  3. Introduction • Iscor’s 1 March 2001 unbundling proposal: a further step in 5 yr programme of releasing value for all shareholders • IDC required as part of unbundling: • ownership of iron ore for Iscor • full recapitalisation of Saldanha • integration of Saldanha into Iscor • Agreement now reached between Iscor and IDC Agreement meets requirements of all stakeholders

  4. Ownership of iron ore • Iscor retains ownership of 6.25 Mtpa of Sishen iron ore from 1 July 2001 (current production – 27 Mtpa) • Total iron ore requirements then received at cost plus 3% • Additional R400 mill p.a. EBITDA for Iscor • Creates a more robust steel operation • Reduced debt allocation ensures no destruction of value in Kumba • Kumba free to: - further expand Sishen (27 Mtpa to 33 Mtpa) and - develop Welgevonden (10 Mtpa) • Iscor retains right to participate in Kumba’s local iron ore expansions only i.r.o. any further domestic requirements • - Iscor remains vertically integrated steel producer • Kumba value remains intact with significant expansion potential

  5. Integration of Saldanha • Saldanha debt R5.8 bn at hedged values (30 June 2001) to be fully refinanced by Iscor and IDC • Iscor to acquire IDC 50% stake in fully refinanced Saldanha • IDC to contribute 50% of Saldanha operating funding requirements to June 2002 - R250m cash to Iscor post unbundling • IDC receives 10 million Kumba shares and 20 million post-unbundled Iscor shares as consideration • If Saldanha funding requirements > R500m can request 50% of excess from IDC in consideration for post unbundled Iscor shares at market price Iscor positioned for integration of SA steel industry

  6. Final IDC holdings • Current IDC holding – 31.5 million shares – 11.5% • Holding post Saldanha integration and unbundling • Kumba – 14.7% • SteelCo – 17.6% (pre rights issue)

  7. Iscor rights issue • Vertically integrated Iscor requires recapitalisation to limit debt • IDC will underwrite R1.67 billion Iscor rights issue post-unbundling • Timing: after interim results announcement in February 2002 • Price at 25% discount to market IDC to underwrite Iscor recapitalisation

  8. Rationale for the rights issue • Unbundling would not be possible without iron ore ownership for Iscor • Leaving debt of R4.3bn in Kumba with reduced R400m EBITDA destroys value in “hard” currency Kumba, with no financial flexibility to develop projects • Debt thus left in “softer” currency Iscor • R3.6bn debt in Iscor not acceptable to lending banks • Hence Iscor debt has to be refinanced Options available to Iscor are: • No unbundling - maximum value release foregone • Kumba overgeared - destroying certain value in the “hard’ currency • Steelco overgeared - not acceptable to lending banks Preferred option is rights issue in Steelco

  9. Iscor Kumba Net debt at 30/6/2001 1 183 2 541 Off-balance sheet debt 95 136 Ticor proceeds (363) - Saldanha Steel recapitalisation Saldanha funding from IDC 2 900 (250) - - (1 670) - Rights issue Effective debt allocation 1 895 2 677 Kumba will hold AST shares: value approximately R400 million. Debt allocation

  10. Other issues • Iscor Board supports IDC’s wish to vote & dispose of Iscor and Kumba shares without restriction • Proposals to shareholders to be voted as one indivisible transaction • Strategic equity partner desirable, but not conditional

  11. Timetable and conditions precedent • Documentation posted to Iscor shareholders 23 Oct • Iscor shareholders’ meeting 15 Nov • Unbundling date 19 Nov • Approvals required • Iscor shareholders • Lending banks (i.r.o. debt allocation) • Competition Commission (only i.r.o. Saldanha integration) • JSE/SRP

  12. Conclusion PROPOSAL MEETS ALL STAKEHOLDER REQUIREMENTS ISCOR • becomes focused integrated steel producer • recapitalised to limit debt • positioned for rationalisation of SA steel industry • favourable procurement creates more robust operation KUMBA • becomes focused metals/minerals producer • value remains intact • positioned for strong growth • significantly stronger balance sheet compared to March proposal Major value release for shareholders

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