The Essar Group, through Essar Africa Holdings Ltd (EAHL), has bought 54 per cent stake in Zimbabwe’s state-owned steelmaker, Zisco. The total deal value is $750 million, which includes $340 million of debt.
Essar (Middle East & Africa) Resident Director and EAHL Director Firdhose Coovadia told Business Standard, “It’s a significantly distressed asset, operating at very low levels. We will invest $400 million in the joint venture to get it back to production; $340 million will be used to pay off the debt and money owed to employees as wages.”
He said the company was looking to restart steel production at Zisco in 12-15 months from the date of getting all other necessary approvals in place.
The transaction requires approvals from various Zimbabwean ministries and acceptable terms for the debt obligations of the government of Zimbabwe (GoZ) towards Zisco’s creditors. Essar said, “Upon closing, EAHL and GoZ will also finalise and settle liabilities such as unpaid wages and salaries and amounts due to various local creditors, etc.”
Zisco, with its one-million tonne annual capacity, has liabilities of $340 million. The company is valued at not more than $45 million. It also owes its employees $20 million in wages.
Essar said, “Essar Africa GoZ will set up two joint venture companies that shall acquire all the steel and mining assets and liabilities of Zisco and its subsidiaries, and Essar Africa will further release GoZ from its guaranteed obligations under the Zisco debt.”
The steel and mineral JVs will be owned 60:40 and 80:20 by Essar and GoZ, respectively.
Coovadia said, “We believe the new ventures will be well positioned to be a low-cost steel producer that can meet the growing demands of the regional market and capitalise on the forecasted growth in sub-Saharan Africa. Zisco revival represents a challenging task that will require the co-operation of various parties, and entail significant capital expenditure.”
Zisco, through its mining subsidiary, Buchwa Iron Company, owns iron ore and limestone mining rights and other claims, which require significant investment in exploration and development.
Essar will hold 80 per cent stake in the minerals joint venture with the remaining stake owned by Zimbabwe. This minerals JV will hold 100 per cent stake in Buchwa Iron.
Coovadia said, “Buchwa Iron has producing mines as well as exploration licences. But, very little exploration has been done till now to access available raw material reserves. Money has to be spent to access the reserves and we will do that.”
In November last year, Zimbabwe chose Essar as a preferred partner to revive the company over companies like ArcelorMittal and Indian steel major Jindal Steel and Power.
