ThyssenKrupp under pressure to provide financing to potential Industrial Services buyers

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ThyssenKrupp is facing calls from potential buyers to provide vendor financing for up to half the value of its industrial services units to secure a sale, sources familiar with the situation told mergermarket.

The listed German steel manufacturer and industrial group kicked off a sales process earlier this year to raise EUR 1bn from the sale of US scaffolding firm Safeway, German scaffolding firm Xervon and ThyssenKrupp Industrieservice to pay down debt.

A source familiar with the sale process of Industrial Services confirmed that buyers are demanding vendor financing. But, the source said, ThyssenKrupp itself has rejected the requests. Two sources close to potential bidders said the level of financing demanded was between 30% and 50% of the asking price for the units. ThyssenKrupp declined to comment.

While ThyssenKrupp had been hoping to raise EUR 1bn from the sale of ThyssenKrupp Industrial Service’s three units, a sector banker with knowledge of the situation suggested bids could only come in at one third of this price under current market conditions. A fourth source with knowledge of one of the sale processes agreed a quick sale is unlikely describing the timetable as ”open”.

Last month the company’s long-term BBB rating was placed on credit watch negative by Standard & Poor’s and its Baa2 rating was put under review by Moody’s following a profit warning. The ratings agencies both expressed concerns that conditions in ThyssenKrupp’s major markets - including steel, stainless steel and automotive – have deteriorated and could continue to fall, which would exert pressure on the company’s cash flow.

A credit analyst insisted the company is committed to maintaining its rating and pointed to corrective measures including cost cutting via adjusted working hours and segment reorganization as evidence. “Hopefully these steps will flow through to lower costs,” the analyst added.

The analyst further alluded to the company’s historical readiness to offload non-core, non- performing assets. But the analyst added that it is difficult to envisage demand for such assets in this market and of course, the proceeds of any sale would have to be held against lost revenues before an agency could deem the sale positive or negative with respect to the company’s rating.

Thus far ThyssenKrupp has failed to offload declining businesses such as its steering and camshafts business Presta and the company is thought to have very few options to cut its debt.

The first source agreed with a second sector banker’s analysis that an equity linked capital-raising or convertible bond issue would be blocked by the Krupp family’s foundation, which is very unlikely to approve a dilution of its 25% shareholding having itself borrowed to secure a stake of this size. Restructuring and moves to slash headcount are also likely to prove difficult in the current political climate while unions have shown some resistance to restructuring.

The second sector banker argued that for the moment ThyssenKrupp had enough liquidity to weather the downturn, but said that if the recession in the steel sector proved to be prolonged the company could be forced to consider the sale of ”crown jewels”, specifically the company’s elevator division. The first source said a sale of ThyssenKrupp Elevators was something, which was ”always being discussed” though he agreed this would not be on the cards unless the company’s situation became really serious.

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