SAO PAULO, Feb 12 (Reuters) - Usinas Siderúrgicas de Minas Gerais SA is negotiating with banks refinancing about 4 billion reais ($1 billion) in loans maturing in the next two years as Brazil’s largest listed flat steel producer faces cash pressures to repay debt, four sources with direct knowledge of the matter said on Friday.
Usiminas, as the company is known, has contacted Itaú Unibanco Holding SA, Banco Bradesco SA, Banco Santander Brasil SA and Banco do Brasil SA to grant a standstill agreement effective immediately, said the first two sources. The banks would agree if shareholders commit to injecting $1 billion into Usiminas, the third source noted.
However, an ongoing dispute between controlling shareholders Nippon Steel & Sumitomo Metal Corp and Techint Group has made it tougher for Usiminas to raise new capital, all the sources said. Usiminas will see how talks with banks evolve before considering creditor protection, a move the company wants to avoid but which Nippon Steel has seriously considered, the first and second sources said.
The sources requested anonymity, saying the debt talks were preliminary. A Usiminas spokeswoman did not immediately respond to a request for comment. Efforts to reach Nippon Steel officials in Brazil were unsuccessful.
Both Techint and Nippon Steel promised banks a response on the capital increase on Feb. 17, a day ahead of the release of fourth-quarter results, the third source said.
Moody’s Investors Service said last month that the impact of the deterioration of Brazil’s market on operations is making it increasingly difficult for Usiminas to honor their debt.
Although Usiminas breached most terms on loans at the end of last year, management convinced banks not to take early repayment actions, according to Moody’s Investors Service.
Usiminas is still gauging how much it could afford to pay in interest this year, partly because recurring operations are losing money, the sources said. The company has contacted advisors RK Partners and Alvarez & Marsal Holdings LLC for an eventual restructuring, three of the sources said.
As of Sept. 30, Usiminas had gross debt of 8.1 billion reais and cash of 2.3 billion reais.
Santander Brasil did not have an immediate comment. Itaú, Bradesco, Banco do Brasil, Alvarez & Marsal and RK Partners did not comment.
Shares in Usiminas reversed early gains and fell in early Friday afternoon trading. Voting and non-voting shares of the steelmaker are down 78 percent and 81 percent, respectively, this year.
At stake is the survival of Usiminas, which was founded 53 years ago to help supply flat steel products for Brazil’s thriving auto-making industry located in the southeastern state of Minas Gerais.
After two years of Techint-led management of Usiminas, in which the company reversed losses and increased productivity at its two main plants, Nippon Steel broke off with the Italian-Argentine group in September 2014, accusing some of its executives of mismanaging Usiminas.
Nippon Steel then allied with Brazilian billionaire investor Lírio Parisotto and other Usiminas shareholders to appoint new management. The spat coincided with the deepening of a slump in Brazil’s demand for cars and home appliances made with Usiminas steel.
In recent months, the Nippon Steel-backed management decided to shut down the Cubatão mill and is poised to fire as many as 1,800 staff.
Techint, which has been sidelined from most management decisions by Nippon Steel, is unlikely to inject additional money into Usiminas without rebuilding the shareholders’ agreement, a fourth source said.
If Techint refused to participate in a capital injection, Nippon Steel could pay for it all alone, diluting Techint, said the second source, who is close to the Japanese firm.
$1 = 3.9824 Brazilian reais Editing by W Simon