Steel Mills

Essar Steel Algoma to Begin Sale Process

Written by Sandy Williams

Essar Steel Algoma will begin the process of looking for a buyer or investor next month according to letters sent to suppliers by CEO Kalyan Ghosh.

Under terms of the Debtor In Possession (DIP) Agreement, the company must get court approval for a “broad and investment solicitation process (SISP)” by February 1, 2016.

“While we are hopeful that 2016 will bring improved market conditions and new opportunities, Essar Steel Algoma is contending with a tight deadline for its financial restructuring,” said Ghosh. “A significant number of variables will have to align to attract a new investor, but the process calls for a deal to be completed and approved by August 31.”

In the sixth report by Court-appointed monitor Brian Denega stated in his sixth report last week, “An expedited timeframe is imperative as there is substantial risk that the Applicants may exhaust their available liquidity under the DIP Facilities before the DIP Agreement expires on August 31, 2016 (subject to possible extension until September 30, 2016). This risk will be exacerbated if the North American steel market conditions continue to deteriorate.”

As part of the SISP, Essar Steel Algoma is developing a five year business plan that potential buyers will use to evaluate Algoma’s operations. A key issue in that plan will be ensuring that an adequate iron ore supply arrangement can be found.

“Seeking court protection is not a decision we took lightly,” CEO Ghosh said in his letter to suppliers. “However, in the face of sharply lower steel prices and weakening global demand, it remains our best chance to ensure that Essar Steel Algoma has the financial resilience to operate now and going forward.”

Sale of Essar Steel Algoma will coincide with the sale of US Steel Canada which is also currently under CCAA protection.

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