The deal will ensure its recently improved relations with the government are further strengthened after years of acrimony.
This also comes as the state-owned Industrial Development Corporation appears to be cooling on its earlier plans to build a $5bn steel mill, which would have competed with ArcelorMittal SA, as reported in the Financial Mail on Thursday, 29 September.
The proposed R2.3bn BEE deal announced on Wednesday with empowerment partner Likamva Resources will see the Luxembourg-based steel maker's stake in ArcelorMittal SA reduced to about 53.72% from 69% once the transaction is concluded. The deal is expected to take effect on November 16 after the local steel producer's annual general meeting, at which shareholders will vote on the proposed issuance of new ordinary shares for the empowerment transaction.
ArcelorMittal SA CEO Wim de Klerk said on Wednesday that the group had already received irrevocable support from 70% of shareholders to vote in favour of the deal.
The BEE deal is the latest concession SA's largest steel maker has made to improve its historically poor relations with the government. It follows ArcelorMittal SA's agreement in August to drop import parity pricing for local flat steel products, pay a record R1.5bn penalty for its involvement in the historical steel cartel and invest an additional R4.6bn in capital expenditure over the next five years.
The government, meanwhile, has approved ArcelorMittal SA's application for a 10% bound rate on all imported steel products and agreed to the designation of local steel products for state procurement and infrastructure projects.
For the purpose of the transaction, ArcelorMittal SA will create a special purpose vehicle where the 17% stake to be issued to Likamva will be held. Likamva will acquire the stake, valued at R1.75bn, through a loan funded by ArcelorMittal SA. The shares will be subject to a 10-year lock-in period and will not be tradeable in that time.
The wholly owned black consortium, whose founders include a broad spectrum of business leaders, will then, within two years, issue 5% of its holding in the local steel maker to a community trust as part of the consortium's own commitments to transformation. Beneficiaries of the community trust will come from areas where ArcelorMittal SA has major operations, such as Vanderbijlpark and Vereeniging.
"This is not just about ArcelorMittal SA but about the transformation and revitalisation of the entire steel industry," said Leslie Maasdorp, vicepresident of Brics's New Development Bank.
Maasdorp is a founding partner in the black consortium. Another prominent member is Jabu Moleketi, chairman of investment group Brait and the Development Bank of Southern Africa.
Maasdorp said Likamva would play an active role in creating value in the local steel maker, pursuing opportunities in new markets, expanding current operations on the continent and engaging in supplier development.
ArcelorMittal SA chairman Mpho Makwana said that together with its BEE partners the group planned to map out where and how growth would be pursued to add value for shareholders.
"We are working on an Africa growth strategy. I am certain there are other opportunities we are missing in the rest of southern Africa," he said.
The local unit sells the bulk of its steel products in SA and exports the remainder to the rest of Africa and countries in the Middle East.
The empowerment deal will also include an employee scheme for the 9,081 permanent employees of ArcelorMittal SA. The employee empowerment share trust will allocate a 5.1% stake in ArcelorMittal SA to workers of all colours, including management. But 60% of the trust would go to historically disadvantaged black employees.
The employee shares will be locked in for a 10-year period, during which time they will not be able to be traded.
Source: Business Day
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