Stemcor, one of the world’s largest steel traders, which is majority-owned by the Oppenheimer family, will restructure its $1.3bn debt after a high court judge overruled an objection from one of its creditors.
But while the Oppenheimer family retains its 71 per cent take in the business, it has in effect lost control of the board. The new independent board will include senior executives and have a majority over family representatives, all of whom will be non-executives.
The restructuring brings to an end a 10-month showdown involving one of the UK’s largest privately owned companies, 80 banks, a prominent British MP and two sparring Indian billionaire brothers.
The trading group, which had revenues of more than £5bn in 2013, defaulted on a $850m loan last year. Falling steel prices had damaged the profitability of the low-margin business, which is still majority owned by descendants of founder Hans Oppenheimer, including his daughter Margaret Hodge, who as head of the parliamentary public accounts committee is the scourge of wasteful public spending.
Under the deal, Stemcor will repay its $1.3bn credit facility over the next two years by selling or winding down 13 of its businesses. Creditors will also stump up $1.15bn for a new committed trade finance facility.
In return, creditors get more orthodox corporate governance at the steel trader, which has been dominated by the family of its founder, Hans Oppenheimer.
Mr Oppenheimer’s son, Ralph, had been chairman or executive chairman of the business since 1982 before he retired as the restructuring got under way last summer.
Simon Freakley, chief executive of Zolfo Cooper, who led the restructuring, said a debt-for-equity swap was never discussed because there was a clear path to resolution through disposals and future trading.
The restructuring is the latest chapter in the – until recently – determinedly low-key history of the 63-year old steel trader.
Stemcor originated in 1951 when it was founded by German immigrant Hans Oppenheimer – a “loveable but fearsome chain-smoking patriarch with a heavy accent”, according to one of his grandchildren.
The Oppenheimer family gained full control of the business in 1987 after it bought out a stake from US construction group McDermott International.
Under the younger Oppenheimer, the group grew rapidly. Turnover quadrupled from £1bn in 2000 to £4bn in 2007 and hit £5.1bn in 2012. But the good times did not last.
The expansion was fuelled by debt and its short-term credit facility ballooned to $1.3bn. Matters came to a head last summer, when Stemcor defaulted on a $850m loan. Ten months of negotiating followed, which resulted in the deal with lenders.
The deal guarantees the medium-term future of the group, according to Julian Verden, Stemcor’s chief executive. “What it does is give real stability to the business,” says Mr Verden.
“When trading with an uncommitted facility, you don’t know whether you can do a deal: you have to ask the bank,” adds Mr Verden.
The new $1.15bn committed trade facility – which means that the banks cannot opt out of certain trades – will also help the group return to normal trading after its bumpy recent history.
Although the company declined to reveal its terms, the new credit facility is more expensive than its predecessor.
In recompense, Stemcor receives something more valuable: time.
To pay down its $1.3bn debt, the company has to sell off some of its businesses.
But these disposals can now take place at a more leisurely place – rather than the fire sale that some had feared would occur.
The sale of its Indian assets – which have attracted admiring glances from two of India’s most prominent billionaire industrialists: Naveen Jindal and his elder brother Sajjan Jindal, the heirs to one of the country’s most high profile business dynasties – has also been explored.
The bidding process for Stemcor’s assets quickly became a contest between the two brothers. Two formal offers were tabled in early January for the assets – which include an iron ore pellet plant and iron ore mine in the eastern Indian state of Orissa – following an indicative bidding process that concluded in late 2013.
However disagreements between Stemcor and two bidders have now stalled the process, according to people familiar with the situation.
One person involved in the process, who asked not be named, said: “The final bids came in below what they [Stemcor] had hoped, and so now they are saying they aren’t in any great hurry, because they have now sorted out their own financing issues, and are looking for both sides to put in improved bids.”
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