At this early stage of VA, everything is purely speculation, however given the immense interest and the significant impact to all stakeholders involved, I am trying to put together some possible scenarios that the administrator may have in mind in some forms or the others:
Possible outcome for VA:
Returning operation back to the Arrium management without entering into any deed of company arrangement does not seem to be a likely outcome at this stage, so I seemly discount it from the analysis.
- Deed of company arrangement
- Liquidation
- Return operation back to the Arrium management
Stakeholders:
Other potential interested parties:
- Lenders - Banks and Notes Holder
- Trade Creditors
- Employees
- Governments at all levels – Council, States and Federal
- Shareholders – Retails, employee, superfund
- Private equity -
- Funds/Investors – GSO, AG etc
Column 1 Column 2 Column 3 0 1 Lenders Prefer - if they can get more money back. Not prefer – as likely they will get less than 50cents in the dollars and the possible default of other lending to the home owners and other nearby businesses. 2 Trade Creditors Prefer – as likely to get most if not all the money back if the company can continue to operation successfully after restructuring Not prefer – as likely they will get less than 50cents in the dollars. Also losing a key customer will have impact to their bottom-line going forward. 3 Employees Prefer – as they still have a job and their home value are maintained with a better prospect going forward. Not prefer – Losing job and loss of values of their homes and may find it difficult to find other job within the states. May need to re-trained/re-skilled and move to other industry. 4 Governments Prefer – as keeping employment low and the steel industry alive. Also less social, political and economical impacts. Not prefer – due to significant social, political and economical impacts. 5 Shareholders Prefer – as likelihood of keeping their investment alive. Not prefer – likely to get very little back from their investment.
Considering the primary interest of all the stakeholders including the lenders, none of them seems to prefer liquidation. In particular for the lenders, the main reasons for not forcing for liquidation would be –
1). They are unsecured and ranked behind employee and after the provision for the cost of winding up.
2). Cost of winding up including the cleaning up cost will leave them with way less than 50cent per dollar. In addition, the knock-on effect on their other lending to the home owners and other nearby businesses could be material.
The Plan (hypothetical):
Therefore the Deed of company arrangement including debt restructuring with governments and employee/union involvements is likely. The BEST plan, in my opinion, would be:
- Debt restructuring plan with lenders hair cut and possible some form of equity conversion AND/OR External private equity/funds investing in the company similar to GSO deal or buying part of Moly to inject funds to the company
- Change of management and the board by hiring someone with good credential.
- Employee/union agrees to freeze wages and conditions
- Government invests in technology to transform Arrium to a more leading edge steel making business including making iron to build military arsenal such as submarines
- Government becomes one of the largest customers of the company by mandating and providing infrastructure contracts to the company
- Government speeds up the legislation in reducing anti-dumping impact to the industry
- State government gives concessions on taxes and duties etc (similar to Bluescope’s case)
- Shareholders participate in recapitalisation where possible
Isn’t it one of the best outcomes for everyone under the difficult situation?
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