Économie et Finance

Maghreb Steel-Sonasid merger is last chance saloon!

le 11 juin 2018

Will Maghreb Steel be saved a second time?

A positive reply to this question appears on the cards. Now, with the 3-year debt moratorium granted by the banks at an end, the company is once again confronted by a colossal MAD 6 billion mountain of debt. The company again finds itself with a noose around its neck in a situation which has become untenable…

 ‘Warrior’ Maghreb Steel must be saved!

Maghreb Steel, the nation’s steel maker, despite being restructured in 2014, is once again in serious difficulty. This, despite the management team, specifically recruited for the purpose, being able to turn around its business, as can be seen in the company’s EBITDA margin, which has consistently improved over the past three years.

The reason being is that the three-year memorandum of understanding (MOU) between the founding shareholder, the Sekkat family and its backers, the banks, came to an end this year.

And so, the time had come for all these bigwigs to sit down around the table to recapitalise the company and relieve it of its MAD 6 billion debt burden which has been weighing down the company and jeopardising its very survival.

With no solution reached to recapitalise the company, Maghreb Steel found itself having to meet the demands of the banks which have threatened to stop financing its working capital. Endeavouring to break the deadlock, management has continued to try to find an agreement with the banks, albeit unsuccessfully!

Mr Amar Drissi, Maghreb Steel’s Chief Executive Officer, who successfully saved the steel maker three years ago, has attempted every conceivable solution to save the company.

The first solution envisaged was to appoint an investment bank to identify a foreign industrial partner.

An international enterprise would have been the preferred choice given that Maghreb Steel is already a global concern and, as such, would have benefited from an alliance with a strategic player which would have given it its backing.

Such an enterprise, in addition to giving financial support, would have provided innovation, research & development and access to different markets, among other things.

There was no shortage of candidates from various countries, China and South Korea included, but the company’s heavy debt burden proved a major handicap!

Negotiations would have had to be conducted between a possible buyer, the banks and the company’s longstanding shareholder, to enable Maghreb Steel to finally achieve long-term debt sustainability.

And the outcome of all this is that a domestic solution has been found which is a merger between Sonasid and Maghreb Steel.

Both companies were recently restructured and now manufacture complementary steel products, the former, rebars and the latter, flat steel.

Understandably, the shareholders of the future merged entity are not yet known despite Maghreb Steel’s creditor banks being the ‘economic owners’ until such time as they have been able to recover their debtt.

A new national Moroccan steel maker is to be born which will most likely expand into Africa. Maghreb Steel, abandoned by its founding shareholders and whose financial health is at an advanced stage of disintegration, is going to be saved.

The history of the company’s bailout

Maghreb Steel’s balance sheet deteriorated in the following manner: Maghreb Steel had MAD 2.6 billion of capital, which, after making a series of losses at the operating level, had fallen to less than a quarter of that sum in 2014. As a result, the company was legally obliged to recapitalise within two years, without its operations being impacted.

To rectify this situation and, given the enormous structural losses accumulated by the company, the company engaged in creative accounting so as to reduce the size of its losses and to not have to increase its share capital.

The result is that, Maghreb Steel’s capital, after capitalising losses, today stands at only MAD 500 million.

It was for this reason that a memorandum of understanding was signed in 2014 between the company’s shareholders and the banks.

The MOU stipulated that the problem of indebtedness and insufficient capital should be put to one side for a three-year period to enable Maghreb Steel to engineer a recovery in its underlying business.

And to attain this goal, a new management team was appointed for this period.

It is worth recalling that this MOU was the result of the founding shareholders’ inability to recapitalise Maghreb Steel, despite their substantial investment, together with MAD 6 billion of bank finance.

Hence the strategy adopted was to separate the problem of long term finance from the challenge of reviving the business.

Today, three years on, with the MOU in question now at an end, there is no recovery plan in place with shareholders as far as Maghreb Steel’s financial situation is concerned.

Senior management, in its role as manager, finds itself in a situation in which the company’s underlying business is being negatively impacted by a lack of capital and the debt burden.

And as long as the issue of long-term finance remains unresolved, it will have an impact on efforts made by management to grow the business.

In concrete terms, Maghreb Steel, with the 3-year MOU between the banks and its shareholders, now at an end, has found itself in a situation in which its bankers are refusing to carry on financing the steel maker’s working capital just when its business is exposed to rising raw material prices.

Requested to repay its outstanding loans, the steel maker’s very future as a going concern is in peril since it is no longer able to meet the hefty interest expenses that result from such a level of debt.

Despite all this, over the past three years, its underlying business has recovered. Management adopted a new approach to managing the business which saw EBITDA move into the black after only two years.

And so, Maghreb Steel, despite its weak balance sheet, is genuinely viable from an operational standpoint.

Perhaps the most convincing indicator of this is EBITDA, which has risen from negative MAD 216 million in 2015 to MAD 200 million in the black in 2017.

Maghreb Steel has regained its status as the country’s steel maker. It provides MAD 1 billion of finance to customers and suppliers both upstream and downstream, thereby creating a veritable ecosystem within the flat steel market.

Its development is integral to the country’s industrial strategy. The expansion of the steel industry is entirely consistent with the Industrial Development Plan put in place by Minister Moulay Hafid Elalamy which aims to foster ecosystems.

Given Maghreb Steel’s strategic importance, its long-term survival is crucial. A merger with Sonasid provides a solution that not only bolsters the country’s steel industry but the entire ecosystem.

Afifa Dassouli

Original article : https://lnt.ma/maghreb-steel-sonasid-rapprochement-de-derniere-chance/