26th Aug 2015 11:58
LONDON (Alliance News) - International Ferro Metals Ltd Wednesday said it has taken steps to address its "financially distressed" South African subsidiary to protect it from its creditors and asked for its shares to be suspended whilst it tries to resolve the issues.
The company said its subsidiary, International Ferro Metals (SA) (Pty) Ltd, has been entered into a Business Rescue due to its "deteriorating business conditions" that were out of the company's control.
International Ferro Metals plans to sell its stake in the subsidiary, but has requested its shares be suspended in the meantime. However, if a sale is not concluded, its shares could end up being suspended for up to six months until the Business Rescue is complete.
A Business Rescue is a statutory means of enabling a financially distressed company to continue in
business, under the supervision of a Business Rescue Practitioner, protected from its creditors. It means creditors who are trying to reclaim funds for whatever reason can not do so without going through the Practitioner, who will try to implement a plan to resolve the financial issues at the company.
"Despite the stringent cost cutting measures taken by International Ferro Metals (SA) (Pty), its financial outlook is such that it is facing financial distress," said the company in a statement.
The company said the subsidiary has suffered from a downtrend in its operations and profitability that has proved "more deep-seated and sustained than anyone expected" but consistent with the decline in global commodity prices.
As a group, International Ferro Metals reported a ZAR176.0 million pretax loss in the first half ended December 2014, and the company said it expects similar losses in the second half of the year.
Falling ferrochrome prices, the economic slowdown in China which has caused a reduction in steel output, rising costs and "other factors" have also hit the subsidiary, which the company said was "largely... outside of its control".
"Most significant of all are the rising electricity costs and interruptions in power supply. Ferrochrome producers rely heavily on electricity for their furnaces and are particularly vulnerable to power discontinuity," it said.
International Ferro Metals said Eskom, which it buys its power from, has almost quadrupled prices since 2007 for heavy industrial users, and the company said the subsidiary lost 10% of its ferrochrome production in July because of load shedding and power trips.
The subsidiary was also hit by strike action from staff employed by one of the subsidiary's contractors, which disrupted operations.
"The combination of low ferrochrome prices, high electricity prices and other costs and losses of ferrochrome production have strained [the subsidiary's] liquidity to the point that it is now in financial distress that is best resolved through the protection of Business Rescue," said the company.
The Business Rescue may lead to the subsidiary shutting down its furnaces and all of its mining operations to try to reduce its expenses. But, whatever happens, it will still derive income from the sale of UG2 chromite produced under a contract with Rustenburg Platinum, which would be enough to cover costs and keep the subsidiary afloat, it said.
International Ferro Metals said it will attempt to sell the shares held in the subsidiary whilst the Business Rescue is undertaken and said it is "reasonably expected that, after satisfying creditors
and transaction expenses, a surplus should be generated that can be distributed to shareholders."
"The company is in negotiation with an interested party and has been recently approached by others in relation to a potential sale. Any such sale will be subject to obtaining certain regulatory approvals, as a result it is envisaged that the period of the Business Rescue could be about six months. However, it is not certain that a sale on satisfactory terms will be able to be concluded," said the company.
International Ferro Metals said it remains solvent, but the company has requested its shares be suspended until the issue with the subsidiary is resolved.
By Joshua Warner; [email protected]; @JoshAlliance
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