Posted on 19 Feb 2016
Nippon Steel, which holds a 29.2% stake in the affiliate, better known as Usiminas, is discussing options with Argentinian steelmaker Ternium, another major shareholder. Possible steps include providing fresh capital and guaranteeing the company's debts.
Usiminas is a pillar of Nippon Steel's overseas operations, serving as the Japanese steelmaker's supply base in South America. Hit by falling natural resources prices and an economic slump in Brazil, Usiminas reported a group net loss of 3.68 billion reais ($919 million) for the year ended in December, compared with a net profit of 208 million reais a year prior.
The steelmaker has been working to restructure operations, shutting a blast furnace and taking other measures, but its liabilities have increased sharply. With some of its debts coming due soon, the company has asked for assistance from major shareholders as well as loan term extensions from its lenders.
If banks refuse to extend repayment deadlines, Nippon Steel and Ternium may have to agree to a capital increase as soon as early March.
But the rescue efforts may be hampered by their poor relations. Nippon Steel and Ternium clashed over how the Brazilian affiliate should be run in September 2014. The Argentinian company raised its stake in Usiminas soon afterward. Their animosity is unresolved, and the issue has festered.
Continued poor performance by Usiminas could hurt Nippon Steel's group earnings. The Japanese company's overseas operations likely will suffer losses for the current year ending in March due to economic slowdowns in emerging countries.
