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Embattled steel and mining group Arrium has been placed into voluntary administration, following discussions with its lenders.
The appointment comes just days after Arrium's banking syndicate rejected a recapitalisation proposal from US group GSO and follows prolonged talks between the indebted Arrium and its banks.
Arrium shares were suspended from trade on the ASX as the bankers tried to hammer out a deal to keep the company alive, and two buyout firms - Argand Partners and Cerberus Capital Management - examined the company's books, as revealed by The Australian Financial Review.
Grant Thornton was the Arrium board's choice to run the administration, while the lenders had asked the company to appoint McGrath Nicol.
Arrium is not just the owner of the Whyalla steelworks, it also has a major presence in the Hunter, running the former BHP steel mills at Mayfield, which are supplied wholly by the company's Whyalla steelworks in South Australia.
Arrium also runs a series of former Comsteel and Smorgon businesses at Waratah, including an electric arc furnace steelmaking plant and a rail wheel manufacturer under the Molycorp brand.
Grant Thornton's managing partner Paul Billingham said the voluntary administration" provides Arrium and its stakeholders time to develop options that will help preserve long-term value and optimise the position of its creditors".
"Our focus will be to stabilise current trading, maintain business as usual across the group's affected operations, identify ways to restore the performance of key business units and develop an optimal solution that maximises the return of creditors," he said.
Mr Billingham said the overseas operations of Arrium, primarily the Moly-Cop business, should be largely unaffected by the appointment. Grant Thornton intends holding a first meeting of creditors within eight days.
The appointment came after marathon talks late on Wednesday night failed to find a way through a financial quagmire, with Arrium loaded down by up to $2.8 billion in debts and its loss-making Whyalla steelworks unable to compete on the global stage because of high costs.
The high debt levels have crippled Arrium but there are buyers circling for the company, who have been waiting for a resolution from the last few days of high drama as the banking syndicate wrestled with the Arrium board over the company's future and the company first went into a trading halt on Monday morning, and then a trading suspension on Wednesday morning.
United States private equity firms Argand Partners and Cerberus Capital Management have been doing extensive work on a full buyout offer for Arrium, after initially making a $1 billion-plus offer for the profitable Moly-Cop business also owned by Arrium. The spotlight is on the fate of the Whyalla steelworks because of the profound political and economic implications of a shut-down of the steelworks at Whyalla, which have been operating since the early 1940s.
Relations between the Arrium board and the banking syndicate became increasingly fraught on February 22 after a surprise announcement made by Arrium of a $1.2 billion recapitalisation plan from United States vulture fund GSO Capital, the credit arm of US private equity giant Blackstone. They offered the banking syndicate only 55¢ in the dollar for their loans, which would have meant those banks taking a substantial haircut. The big four Australian banks are owed a combined $1 billion and would have collectively written of $450 million in bad debts.
Christopher Pyne MP’s statement
The Industry, Innovation & Science Minister Christopher Pyne expressed disappointment at the latest development and vowed support, particularly for the workers at Whyalla.
“The Federal Government is disappointed by today’s announcement by the board of Arrium to place the company into voluntary administration however remains hopeful that a positive outcome can be achieved.
“This is a difficult time for the workers and families affected, particularly in Whyalla.
“While we are advised by the Administrator's that it remains business as usual, the Federal Government stands ready to assist the workers of Whyalla.
“The Government, through jobactive, already has a range of support services available for workers who have recently lost their jobs from Arrium. Any additional assistance would build on these existing employment services.
“The State Government will have a key role to play in ensuring measures are in place to support any workers adversely impacted.
The Australian steel industry is facing substantial challenges primarily caused by the significant oversupply of steel. The Australian steel industry is not alone in facing these challenges.”