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Exclusive - Brazil's Usiminas unit saw no risk from cash plan, source says
January 13, 2017 / 11:06 AM / 10 months ago

Exclusive - Brazil's Usiminas unit saw no risk from cash plan, source says

SAO PAULO (Reuters) - Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais SA’s plan to tap excess cash from a mining subsidiary that was rejected this week was found not to pose any potential financial risk for the unit, a person briefed on the matter said.

In recent months, Usiminas (USIM5.SA) sought tapping excess cash at the Musa Mineração Usiminas SA through a capital reduction, to comply with terms of a 6 billion-real debt refinancing accord with banks. The initiative was rejected earlier this week by Musa shareholder Sumitomo Corp (8053.T).

According to the person, executives at Musa ran simulations under which the 1 billion-real (257.90 million pounds) capital reduction would take place, with none of them pointing to any cash strain. The simulations were run late last year at the behest of Sumitomo, the person said.

Musa offered to formally present results to the management and board of Usiminas so they were aware of the implications of the plan ahead of the Jan. 10 vote, said the person, who asked for anonymity due to the sensitivity of the issue.

Sumitomo, which confirmed to Reuters having requested the analysis, vetoed the plan that day saying it could put at risk Musa’s financial position for the years to come. Usiminas, based in Belo Horizonte, and Musa declined to comment.

Usiminas has vowed to legally challenge the veto through any “valid legal means”. The veto bars the debt-laden steelmaker from tapping cash from Musa, in which Sumitomo has a 30 percent stake.

Analysts have said Musa is not in urgent need to deploy cash because it is not currently undertaking significant investment plans.

Sumitomo decided to exercise the veto right “based on its own analysis”, according to a spokesman who declined to elaborate further, because the matter may go to arbitration.

The situation is another chapter in a 2 1/2-year rift between the steelmaker’s two top shareholders - Nippon Steel & Sumitomo Metal Corp (5401.T) and Techint Group’s Ternium SA (TX.N). Ternium and Nippon Steel have been battling over control of Usiminas, which is suffering with Brazil’s worst recession ever and high debt.

This week, Ternium called on Usiminas Chief Executive Officer Rômel de Souza to accelerate the tapping of Musa’s cash before the debt refinancing accord’s June 2017 deadline.

This week, Reuters reported, citing documents, that Souza and Musa President Wilfred Brujin had unilaterally agreed to the use of Musa’s excess capital without the acquiescence of Usiminas’ board. Souza is also the chairman of Musa.

The document from November showed that two Nippon Steel-appointed members of the Usiminas board suggested Musa could extend a loan to Usiminas to meet the refinancing deadline of June 2017.

Both executives declined to comment on the content of the document, as did Nippon Steel.

Additional reporting by Yuka Obayashi in Tokyo; Editing by Bernard Orr and Alison Williams

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