GIC keeping close tabs on cash-strapped Arrium

Singapore sovereign wealth fund GIC is closely monitoring its investment in cash-strapped Australian steel and iron ore supplier Arrium, it told The Straits Times yesterday.

Arrium went into voluntary administration in April after lenders rejected its US$927 million (S$1.3 billion) recapitalisation plan.

GIC declined to comment on the size of its investment and the prospects of its recovery. The Straits Times understands that it holds around 8.21 per cent of the firm.

Arrium is among a number of steel mills around the world that are struggling to compete with cheap exports from China, which accounts for about half of global output. China's steel exports surged to an all-time high last year, as local producers grappled with waning domestic consumption.

Australian media reports said Arrium's lenders want to see the business sold, including the steel works, port and mining operations at Whyalla in South Australia and its steel manufacturing, distribution and recycling business.

But a group of shareholders, comprising former and current Arrium employees, suppliers and investors, called the administration process "unfair" and are resisting a fire sale of assets by Arrium administrator KordaMentha to reduce debt.

They told The Straits Times yesterday that market conditions have improved and pointed to "cost-cutting measures and Australian government initiatives to support the company via direct funding and policies support".

Administrator Mark Mentha of KordaMentha told the shareholders on Wednesday that Arrium was placed into voluntary administration because it was unable to meet its debts when they became due.

He said: "Those debts included repayments and other obligations towards about A$4 billion (S$4.1 billion) of debt. That position remains unchanged, even though some parts of Arrium may be trading profitably at an operational level. The cash generated from operations is not enough to service the debts.

"Under insolvency law, shareholders are not entitled to participate in creditors' meetings, and rank behind employees and unsecured creditors and other parties owed money.

"While we sympathise with the position of shareholders, we must act in accordance with our legal obligations and in the interests of creditors as a whole. Unsecured creditors are not likely to be repaid in full, but we must aim to achieve the best possible outcome for them."

A version of this article appeared in the print edition of The Straits Times on August 26, 2016, with the headline 'GIC keeping close tabs on cash-strapped Arrium'. Print Edition | Subscribe