Evraz Plc’s South African steelmaker plans to apply for the local equivalent of bankruptcy protection as a slump in demand for the metal left it with insufficient funds.
Evraz Highveld Steel and Vanadium Ltd.’s board filed a resolution to begin so-called business-rescue proceedings with the country’s companies regulator, the unit said in a statement Tuesday. Highveld appointed business-rescue officials, it said.
Evraz, partly controlled by billionaire Roman Abramovich, bought a quarter of Highveld from Anglo American Plc in 2006. It raised the stake to 85 percent the following year, paying more than a combined $678 million for the transactions.
Moscow-based Evraz sought to sell the business in 2013 but failed to find a buyer as metals prices sank. The unit was hit by “weakened global steel and vanadium markets and a severe reduction of domestic steel demand,” Highveld said Tuesday. Vanadium and steel fell more than 20 percent in the past year.
Protection from creditors would afford Highveld a way to consider whether it should continue implementing a turnaround plan and successfully re-establish itself, the producer said.
Highveld produced 642,405 metric tons of steel in 2013, it said in a March 2014 statement. That means its production comprised 9 percent of South Africa’s total output of 7.2 million tons that year, data on the website of the nation’s Iron and Steel Institute show. Highveld employed 2,303 people that year, according to data compiled by Bloomberg.
ArcelorMittal’s local unit is the country’s largest producer, with 5. 1 million tons in 2014.
South Africa’s steel industry is struggling as spending on infrastructure projects remain low, manufacturing declines and cheaper imports enter the market, Abrie Audie, a spokesman for the Pretoria-based steel institute, said by phone. Highveld mainly supplies products to the construction industry, he said.
Manufacturing output, which made up 12.5 percent of gross domestic product in the fourth quarter, contracted 0.5 percent in February from a year earlier. Africa’s most industrialized economy expanded 1.5 percent last year, the slowest pace since a 2009 recession.
“The market is not in a great place right now,” Audi said. “The combination of higher costs, lower-quality imports and a lack of activity in the construction space are hurting everyone.”
An agreement in which Macrovest 147 Proprietary Ltd. would buy 34 percent of Highveld for 289 million rand ($24 million), which Evraz announced in August, has lapsed, the South African company said Tuesday.
Macrovest is led by Barend Petersen, the executive chairman of the South African operations of Anglo American Plc’s diamond-producing unit, known as De Beers Consolidated Mines.
Evraz confirmed in a separate statement Tuesday that the proposed sale won’t be completed. Its press service in Moscow wasn’t immediately able to comment beyond the statement.
Evraz fell 0.9 percent to 201.4 pence by 11:53 a.m. in London. Highveld, suspended in Johannesburg trading, had a market value of 164 million rand at the close on Monday after declining 47 percent since the beginning of the year.