Usiminas Slumps as Controller Discord Jeopardizes Rescue Efforts

  • Company says Nippon Steel willing to inject 1 billion reais
  • Board scheduled to meet Friday after nine-day winning streak

Usiminas retreated from a record rally as its joint controlling shareholders, engaged in a long-running battle over how to run the Brazilian steelmaker, presented vastly different proposals on how to keep it solvent.

The stock fell 10 percent to 1.90 real at 2:45 p.m. in Sao Paulo, snapping a nine-day winning streak. The board was scheduled to meet Friday to discuss a possible capital increase, which is a condition for creditors to renegotiate debt.

Usinas Siderurgicas de Minas Gerais SA, as the company is known formally, received a proposal from Nippon Steel & Sumitomo Metal Corp. in which the Tokyo-based company would subscribe as much as 1 billion reais ($274 million) in new voting shares, according to a regulatory filing. Co-controller Ternium proposes as much as 500 million reais, subject to Usiminas securing access to cash from its MUSA unit. Ternium is owned by Italian billionaire Paolo Rocca’s family through Techint Group.

As a condition, Ternium-Techint will also push for a management shakeup at today’s meeting, said two people with knowledge, asking not to be named because talks are private. That follows the 2014 ouster of Chief Executive Officer Julian Eguren and two other Techint-appointed executives over alleged financial misconduct. Usiminas veteran Romel Erwin de Souza took over as CEO.

More Conditions

Usiminas owns 70 percent of MUSA while Sumitomo holds the remainder. Sumitomo says it’s willing to allow Usiminas to access funds from MUSA as long as Nippon Steel and Ternium-Techint agree to inject at least 1 billion reais.

Even after today’s retreat, the shares are up 125 percent in the past month, the biggest four-week surge since Bloomberg records begin in 1994. 

Still, the current share price is only a fraction of its 47.30-reais peak in 2008 as the steelmaker curtails higher-cost production and attempts to sell assets amid deepening losses and surging credit costs.

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