Stelco Is Back With C$200 Million IPO to Fund Steel Expansion

Updated on
  • Company wants to win back auto contracts it lost to U.S. Steel
  • IPO launched amid uncertainty over NAFTA, U.S. tariff on steel

Stelco plant in Hamilton, Ontario, Canada, in 2005.

Photographer: Norm Betts/Bloomberg

Stelco Holdings Inc. gained 13 percent as the 107-year-old Canadian steelmaker returned to public markets Friday following two trips through bankruptcy court.

The shares closed at C$19.20 in Toronto, giving it a market value of about C$1.67 billion ($1.31 billion). The steelmaker raised C$200 million in its initial public offering after pricing its shares at C$17 apiece, the midpoint of its disclosed range.

The share gain probably stems from the fact that there are no other publicly traded Canadian steel companies, said James May, managing director of Toronto-based price forecaster Steel-Insight.

“I think it’s just a limited availability of steel names out there in the Canadian market,” May said Friday in a phone interview. “There isn’t really a peer.”

The trading debut, the first IPO globally for a steelmaker since 2010, marks a rebirth for Hamilton, Ontario-based Stelco, which emerged from creditor protection in June after it was purchased by private equity firm Bedrock Industries. Stelco was previously owned by Pittsburgh-based U.S. Steel Corp., which acquired the Canadian company in 2007 after it emerged from its first stint in bankruptcy protection.

Bad Timing

The timing of the U.S. Steel deal was unfortunate, made shortly before the global financial crisis sent steel prices plunging. As part of its agreement with the Canadian government to purchase the assets, the U.S. company vowed to maintain certain levels of employment and production at the renamed U.S. Steel Canada Inc. -- commitments that were broken once the financial crisis hit.

Already tense labor relations deteriorated further under U.S. Steel, with three separate lockouts at the Canadian operations in Hamilton and Nanticoke, Ontario. The company permanently shut down its blast furnace in Hamilton in 2013.

In 2014, the former Stelco was granted protection from its creditors once again, citing an aggregate operating loss of $2.4 billion since December 2009 and $1 billion in pension liabilities. 

“Operational changes, cost reduction initiatives and streamlining of operations cannot on their own make it competitive in the current environment,” Michael McQuade, president and general manager of U.S. Steel Canada, said at the time.

High Strength

Through the second restructuring process, the company was able to eliminate C$3 billion of debt and C$1.4 billion of pension and benefit obligations. Stelco also was able to secure a five-year agreement with the United Steelworkers union, which represents its 1,650 hourly workers.

Under Bedrock Industries’ Alan Kestenbaum, who is Stelco’s new chief executive officer, the company plans to focus on making high-strength steel for the automotive and construction industries.

Stelco will have to compete with its former parent company, which migrated many of Stelco’s auto contracts to its U.S. plants. The auto industry accounted for 37 percent of Stelco’s consolidated shipments in 2006 and only 3 percent in 2016, according to the company’s prospectus.

Stelco’s trading debut comes as uncertainty looms over the future of the North American Free Trade Agreement, which is being renegotiated. The company’s prospects also may be affected by a U.S. investigation into whether steel imports threaten national security. Commerce Secretary Wilbur Ross said last month the Trump administration will defer a decision on steel tariffs as it focuses on tax reforms.

Stelco is selling shares from treasury and will use the proceeds to fund capital expenditures, restart some of its operations, prepay pension and retirement obligations and for other general corporate purposes, according to a regulatory filing.

The share sale was led by Goldman Sachs Group Inc. and Bank of Montreal. The banks on the deal have the option to purchase additional shares that could increase the total proceeds to C$230 million, the filing shows.

Stelco, which will use the stock ticker STLC on the Toronto Stock Exchange, is trading on a so-called “when-issued” basis until the sale closes Nov. 10.

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