BlueScope Steel, Australia’s largest steelmaker, has agreed to sell half its coated products operations in Asia and the US to Nippon Steel for net proceeds of $US540 million after posting a full-year loss.
The company's shares rocketed by as much as 55 per cent before easing back to close 9 cents, or 35 per cent, higher at 35 cents. Stock turnover in the first 10 minutes topped 26 million shares, roughly equal to the full-day average over the past year.
The two companies will form a joint venture called NS BlueScope Coated Products valued at $US1.36 billion, Melbourne-based BlueScope said today in a statement. No gain or loss will be recorded on BlueScope’s income statement because the deal will be recognized within equity, the company said.
The 50-50 joint venture will give Nippon Steel, Japan’s largest steelmaker, a greater presence in the US, Indonesia, Malaysia, Thailand, Vietnam, Singapore and Brunei.
It came as BlueScope said it likely will report a loss of $1 billion for the year ended June 30 after impairment charges as it restructures its Australian operations.
“Our second-half underlying result is expected to be in line with guidance and our year-end net debt of $384 million is a very good outcome,” chief executive Paul O’Malley said in the statement.
Nippon Steel’s “investment in our business will make $540 million of net proceeds available to fund opportunities for future profitable growth from a further strengthened balance sheet,” he said.
'Near zero net debt'
“BlueScope will have near zero net debt post transaction, giving financial capacity to pursue highly accretive but deferred growth projects.” Michael Slifirski and Sam Webb, analysts at Credit Suisse Group AG, said today in a note to clients. Credit Suisse is BlueScope’s financial adviser in the proposed joint venture with Nippon Steel.
BlueScope will appoint the CEO of the joint venture that will be based in Singapore. The transaction is expected to be complete in March 2013, BlueScope said.
“The equity participation will open the way for quicker responses to the rapidly expanding demand for coated products in the building and construction fields in Southeast Asia and North America,” Nippon Steel said in a separate statement.
BlueScope's share price has collapsed over the past 12 months from near $2 per share to below 30 cents, prior to today.
Local steelmakers have been hard hit by a high Australian dollar, which has traded above parity with the US dollar for much of the past year, making imported steel cheaper for major construction projects.
Bloomberg with Reuters