Arrium’s recapitalisation plan rejected

The debt-laden Australian miner’s GSO-led plan has been given short shrift by lenders to the firm.

Lenders to indebted Australian miner Arrium have rejected the company’s $1 billion recapitalisation plan led by Blackstone’s credit arm, GSO Capital Partners.

The company has sought a trading halt on the ASX exchange until 6th April or until an announcement is made about its financial future.

Arrium is sitting on a $2 billion debt pile. Under the proposed agreement, GSO would invest up to $927 million through a mix of debt and equity. This would hand equity warrants equal to a 15 percent stake in the restructured business to GSO, as well as two board seats. It would also wipe out the miner’s current shareholders with the firm raising $262 million via a pro-rata rights issue underwritten by GSO.

According to The Australian, the lenders were angered by the lack of consultation from Arrium ahead of the commitment to the GSO offer. In addition, they were unhappy that they had to accept a haircut under the GSO offer while trade creditors did not. Therefore, they wanted Arrium to run an expressions of interest process that would allow them to assess all available options.

Furthermore, mining workers failed to agree on a deal to cut their wages as part of the company's cost-cutting drive yesterday. The Australian states that only 69 percent of the workers employed at Arrium’s pellet plant voted to accept a proposed 10 percent pay cut while a majority of its mine workers voted against the proposal.

The Australian reported that private equity firms Argand Partners, Cerberus Capital Management and KKR are now eyeing the distressed opportunities offered by Arrium. Arrium refused to comment.

Without a significant improvement of its financial situation, the company would need to mothball the Whyalla steelworks. This would put more than 1,000 jobs at risk, according to a local press report.

“It would be a ridiculous situation and dramatically alter and affect our national sovereignty so it’s important from that perspective that the banks, their lenders and the noteholders consider the Australian national interest which is that we must manufacture our steel here in Australia,” said South Australian Treasurer Tom Koutsantonis.

“And if Arrium do not operate in Whyalla, New South Wales, in Victoria — we'll be the only industrialised country in the world with such iron ore reserves that imports its steel,” he explained.

The Australian government was committed to help the struggling company by reforming anti-dumping laws and purchasing 72,000 tonnes of steel for the Adelaide-Tarcoola rail line.