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The Essar group is putting more money into its two struggling units in North America, cutting costs in its Stanlow refinery and has sold a part of its outsourcing business for $610 million.
On July 16, the Essar group announced it would add $300 million more into new equity of its US-based steel company, Algoma, including $100 million before financial restructuring is approved by a bankruptcy court. The infusion comes within months of the group investing $150 million in Trinity Coal, which helped the company emerge from bankruptcy.
"The fund infusion by the promoters will help these companies to continue operations," said a Mumbai-based banker who did not wish to be named.
Algoma blamed the US economic downturn, severe weather disruptions, raw material prices and a rise in pension costs while filing for bankruptcy protection. The company listed liabilities of more than $1 billion, according to Bloomberg.
The Algoma restructuring comes within four months of Trinity Coal, with mines in Kentucky and West Virginia, announcing it had resolved $325 million of claims. After putting in $150 million, Essar reorganised the company's equity, helping it to emerge from bankruptcy protection sought last February. Essar had bought Trinity Coal from Denham Capital in 2010 for $600 million.
"There is no impact on any employee, pension or trade obligation of Algoma beyond the senior unsecured note-holders. This agreement provides for a comprehensive capital infusion, a substantial deleveraging of our balance sheet and the refinancing of all of Algoma's senior secured debt," an Algoma spokesperson said.
The spokesperson said Algoma had not commenced insolvency proceedings in Canada or the US. Because Algoma's debt was issued under US laws, the company had been granted protection from creditors in the US under Chapter 15 of the US bankruptcy code, the spokesperson added.
The purpose of the Chapter 15 proceedings was to recognise and give effect under US laws to consensual restructuring of Algoma's debt in Canada, the spokesperson said.
Essar also announced on July 22 it would shed a third of its capacity at its UK oil refinery to 195,000 barrels a day by October. International media reports said the group would cut 1,000 jobs at Stanlow, but Essar executives who did not wish to be named said the cuts would not be more than 100. The executives said the Stanlow refinery was not for sale after Reuters reported on June 11 the company would be sold off for $500-600 million. Essar had bought the refinery from Shell for $350 million in 2011. By mothballing the unit, the company will be able to reduce overcapacity that has reduced profit margins in Europe.
REJIG IN PROGRESS
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Feb 3: Essar infuses $150 mn more in Trinity Coal
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July 10: Essar infuses $150 mn more in Trinity Coal
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July 16: Essar infuses $100 mn more in Algoma
- July 22: Essar announces job cuts, to shrink output by one-third in Stanlow refinery
