Billionaire Steelmaking Clan Faces Key Test in Quest to Cut Debt
(Bloomberg) -- Benjamin Steinbruch built a reputation by seizing rare opportunities to buy corporate giants sold by the Brazilian government. The strategy created a multibillion-dollar steelmaker and briefly put him in charge of the world’s second-biggest iron ore miner.
Now, his dealmaking skills are again being put to the test.
Only this time, Steinbruch is the one selling. He’s trying to convince investors to fork over as much as $1.5 billion for a piece of CSN Mineracao, the mining unit of one his companies looking to price an initial public offering on Friday.
What’s at stake is the future of the Steinbruch family’s flagship asset, steelmaker Cia Siderurgica Nacional SA. A rally in steel prices has boosted CSN shares 160% in the past 12 months, fueling the Steinbruch’s wealth. The value of the family’s stake is now $4.9 billion, according to the Bloomberg Billionaires Index.
Both the firm and the family, however, are heavily indebted with significant payments due in the next few years. That’s resulted in pressure from investors and creditors to sell assets and pony up cash.
Some are skeptical he’ll pull it off.
“The IPO is going to be a trial by fire for the company,” said Felipe Ruppenthal, an analyst at Eleven Financial Research, citing CSN’s track record of not always delivering on promised growth.
CSN has 19 billion reais ($3.5 billion) in debt coming due by 2023, filings show. To address that, the firm has vowed to cut its net debt-to-Ebitda ratio by almost half in 2021. A Steinbruch family holding, Rio Iaco Participacoes SA, had about 2.5 billion reais in debt that’s been rolled over in past years, according to recent filings. The Steinbruchs gave personal guarantees on those loans and pledged nearly a quarter of their CSN shares as collateral, filings show.
A representative for the Steinbruch family, which owns 53% of CSN, declined to comment, as did the company.
Steel prices have more than doubled and iron ore has surged since March 2020, with stimulus from governments across the globe boosting demand. As Brazil’s economy recovers from its Covid-19 travails, CSN has the “perfect conjunction” for a better 2021, Steinbruch said at a December event.
That might explain why Steinbruch finally put a prized asset up for sale. The IPO for CSN Mineracao, Brazil‘s second-biggest iron ore exporter, may yield as much as 5.7 billion reais for CSN if investors agree to pay the top of the proposed price range. Morgan Stanley is leading the offering.
In 2016, CSN sold its stake in can maker Metalic for about $96 million, and two years later unloaded its Indiana operations to Steel Dynamics Inc. for $400 million.
The Steinbruch family fortune originated from Vicunha Textil SA, Latin America’s biggest denim maker, according to its website. The company was founded by Benjamin’s father, Mendel, and his brother Eliezer. Benjamin later took advantage of a massive wave of Brazilian privatizations in the 1990s to branch out and buy a stake in CSN and later mining giant Vale SA, the world’s second-biggest iron ore miner, where he became chairman.
The family ultimately relinquished their stake in Vale in exchange for a larger share of CSN, after clashing with partners. In addition to Vicunha and CSN, the family’s holdings also include lender Banco Fibra, which was in financial trouble a few years ago but has since improved.
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