Brazilian infrastructure group Votorantim is expected to end this month, with great relief, the sale of its steelmaker in Colombia, in a deal negotiated in November with two local funds – Trinity Capital S.A.S. and Structure S.A.S. Banca de Inversión.
The deal involving Boyacá-based Acerías Paz del Río depends on a public offering of shares to be made in the local stock exchange later this month. The offering will allow the acquisition of the remaining shares beyond the 82.42% stake held by Votorantim.
Votorantim will receive $19.2 million for its 20,499,067,131 shares, considering the price agreed with the funds, of 3.65 Colombian pesos each. That means a little more than 3% of the total disbursed to buy the asset in March 2007 and in operations in the following years.
The date of the offering is currently being analyzed by the Financial Superintendence of Colombia. The local securities market authority had 30 days from the communication (November 11) of the pre-agreement between Votorantim and the funds to set the day.
By getting rid of Paz del Río, the group takes another step towards leaving the steel industry after making the decision in 2017. A year later, it sold a controlling stake in the Brazilian business to ArcelorMittal in exchange for 15% of the rival’s long steel business. This stake is expected to be negotiated with ArcelorMittal at the end of 2022, when it can exercise a put option – which gives it the right to sell the asset.
The acquisition of the Colombian steel mill, located in the Belencito district, 200 km far from Bogotá, took place amid fierce competition with ArcelorMittal, Gerdau and CSN. The auction in the Colombian stock market took five hours. ArcelorMittal battled for the asset until the final bid.
Votorantim won by paying $491 million for 52% of the controlling shares, which belonged mostly to the employees and the Colombian government, paying a premium of 157%. The group later spent more than $100 million to reach the 82.42% stake.
Those were times of euphoria in the mining and steel industry around the world. M&A activity was intense, and all groups active in the sector wanted to mark territory – globally or regionally.
Paz del Río is a medium to small-sized steel mill that makes around 350,000 tonnes of rolled steel per year. Most of its facilities are outdated, except for a billet rolling mill that started operating at the end of 2007. The steel company owned iron, coal and lime mines, which enticed Votorantim to buy the asset at the time.
The group ended up not making significant investments in the steelmaker, so much so that it still has the same size and operational facilities. It produces what the local market is able to absorb. Colombia is a great importer of steel to meet the internal demand. Competition is fierce due to favorable import conditions.
The company accounts for 30% of Colombia’s steel output. A source familiar with the steelmaker said it wasn’t worth keep investing there because the return wouldn’t come. Paz del Río probably ended 2020 with an operating revenue of $1.35 billion.
The steelmaker is expected to report R$500 million in EBITDA and maybe some profit in 2021. The company failed to make a profit in the last three years.
The second largest shareholder of the company, a state-owned company created by the Colombian government in 1948, and then the main integrated steelmaker in the country, is the Instituto de Fomento y Desarrollo de Boyacá (Ideboy), owner of 13.27% of the common shares of Paz del Río.
After these sales in 2022, Votorantim will still keep a long steelmaker in Argentina, called Acerbrag, which produces 250,000 tonnes a year, is the third largest in the country, has a high-quality industrial complex and no debt. It is a very small mill that operates with scrap and is located in Bragados, two hours away from Buenos Aires.
The group designed a strategy to reduce exposure to commodities – such as steel and pulp, which are very subject to price volatility – and expand its footprint in businesses that generate stable income. As a result, in November, it invested R$1.35 billion to expand its stake in CCR by buying shares on the stock exchange over three months. The group now owns 5.6% of Brazil’s largest infrastructure company.
The segment, which includes highways, sanitation, railroads, ports, logistics and airports, is one of the group’s targets for new investments. In 2021, Votorantim launched Altre, a real estate development company. The first large investment amounted to almost R$1 billion to buy 60% of a business building in São Paulo.
Also last year, in October, the group announced a merger of its power generation and commercialization operations, run by a partnership between VE and the Canadian fund CPP Investments. A new company, including assets such as wind and solar generation company CESP and the commercialization company, formed a new company with annual sales of around R$6 billion, which is expected to be listed on the Novo Mercado, the strictest governance segment of exchange B3.
Since 2020, with the money obtained from the sale of pulp maker Fibria, the group adjusted the capital structure of Votorantim Cimentos (injected around R$3 billion) and CBA, its aluminum maker. With an improved financial situation, VC went into the field and acquired three cement companies within a year, starting in December 2020 – one with operations in Canada and the U.S., and two in Spain.
CBA restructured itself financially and adjusted its business focus, seeking to work more with recycled aluminum to offer “green metal” to local and overseas customers. In July, it went public at B3, with shares listed on Novo Mercado.
Source: Valor international