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ArcelorMittal Stake Sale Avoids Censure of Regulators

South African regulators said they won’t intervene in ArcelorMittal South Africa Ltd.’s planned sale of a 9.1 billion rand ($1.3 billion) stake to a group of black investors that includes one of President Jacob Zuma’s sons, amid growing opposition from minority investors and political parties.

“It’s got nothing to do with us,” Financial Services Board spokesman Russel Michaels said by phone from Pretoria today. The FSB regulates all financial services in South Africa apart from banking.

The Securities Regulation Panel, which regulates takeovers in South Africa, said the transaction doesn’t fall within its jurisdiction because it doesn’t involve a change in control. JSE Ltd. director of listings John Burke said the exchange’s rules will only apply if the deal is a related party transaction.

ArcelorMittal South Africa, a unit of the world’s largest steelmaker, is facing opposition from minority shareholders to its plan to sell 26 percent of its business to a group of black investors known as the Ayigobi Consortium, which includes Duduzane Zuma. The opposition Democratic Alliance party today said it will ask the Financial Services Board to probe the deal if its approved by shareholders.

South Africa’s Public Investment Corp., the steelmaker’s largest minority shareholder, said on Oct. 4 it has reservations about the transaction and will oppose the deal. The pension fund manager said it “questions the ethics” of the proposal.

‘Monitoring Very Closely’

ArcelorMittal South Africa, 9.1 percent-owned by PIC, also faces opposition from other shareholders, including Sanlam Ltd., the biggest South Africa-based insurer, the Old Mutual Investment Group of South Africa and Element Investment Managers. RMB Asset Management, a unit of FirstRand Bank Ltd., will also oppose the planned transaction, Business Day said on Oct. 1, citing a person at the fund manager it didn’t identify.

ArcelorMittal is “monitoring the situation in South Africa very closely,” ArcelorMittal South Africa spokesman Themba Hlengani said in an e-mailed response to questions yesterday. The company has “no further comment to make at this time.”

The transaction with Ayigobi depends on the awarding of mineral rights to one of the group’s investors, Imperial Crown Trading Ltd. ICT was awarded disputed mining rights for the Sishen iron-ore deposit, previously held by ArcelorMittal South Africa. Imperial won the Sishen license after ArcelorMittal South Africa missed a renewal deadline, sparking a battle with Kumba Iron Ore Ltd., the mine’s owner, which demanded the disputed rights for itself. Kumba used the conflict to cancel a deal with ArcelorMittal South Africa that had given the steelmaker most of its ore at a discount.

Destruction of Wealth

That the potential transaction values ICT at 1 billion rand is “obscene” and represents a “a destruction of shareholders’ wealth on a technicality,” said Simon Hudson-Peacock, head of specialist equities at Cape Town-based Cadiz Asset Management. “The shenanigans should be set right by a court.”

With ArcelorMittal holding the majority stake in the South African unit and financial regulators not involved in the mining rights issue with no jurisdiction over the disposal of a 26 percent stake, the only way the deal may be stopped is through “political pressure and reputational risk,” said David Couldridge, an investment analyst at Element Investment Managers, which owns shares in the steelmaker.

The so-called empowerment deal comes under laws that compel companies to sell stakes to black investors to make up for apartheid, the segregation policy that ended in 1994.

Shares of ArcelorMittal South Africa fell 16 cents, or 0.2 percent, to 82.40 rand as of the 5 p.m. close in Johannesburg, giving it a market value of 36.7 billion rand.

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