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Brazil's Usiminas hires Credit Suisse for unit sale

February 16
4:56 AM 2016

Usiminas Siderurgicas de Minas Gerais SA, a Brazilian steel producer, has hired Credit Suisse SA as its financial advisor for selling its subsidiary. Usiminas is exploring a proposal of selling its manufacturing subsidiary or part of its assets. The Brazilian steel industry is facing turbulent situation amid global economy slowdown.

Brazilian steelmaker Usiminas has a manufacturing unit Usiminas Mecanica. Usiminas appointed Credit Suisse on 26 November 2015, but not yet taken a final decision on unit sale, according to its latest statement on Monday (15 February 2016). The Brazilian steel manufacturer is expected to take a final decision shortly.

Bloomberg reports that Brazil's steel industry is dependent on automotive and construction sectors. The domestic recession in Brazil is taking a toll on the construction activity and automobile companies. This is reducing demand for the steel industry. The China's economy slowdown is further hitting the Brazilian steel industry.

Usiminas is also in talks with banks on refinancing of about Reais 4 billion ($1billion). Usiminas has loans maturing in next two years. According to the sources in the know, Usiminas has approached Itaú Unibanco Holding SA, Banco Bradesco SA, Banco Santander Brasil SA and Banco do Brasil SA. The Brazilian steelmaker is in the process of getting a standstill agreement with the banks.

Reuters states that the banks would agree if shareholders agree to invest $1billion into Usiminas to ease debt burden on the company. But, there's tussle going on between controlling shareholders Nippon Steel & Sumitomo Metal Corp and Techint Group. This prevents Usiminas to take a decision on raising new capital.

The situation is become worse for three largest steel makers in Brazil. CIA, Siderurgica Nacional SA, Gerdau SA and Usiminas have been suffering from the economy slowdown and dwindling of revenues. The three largest steelmakers are witnessing decline in their bonds. 

Another Brazilian steel major CSN is on the verge of bankruptcy owing to tumbling demand. CSN was downgraded to B- by Fitch Ratings. China has huge reserves of steel amid declined demand in the domestic market. As a result, China is dumping steel in the global markets. This is affecting CSN severely. CSN is forced to sell steel at huge discounts undercutting high cost producing nations such as the US, Europe and Australia, according to Forbes.

The sluggish global economy including China's economy slowdown is fuelling adverse conditions in the Brazilian steel industry. This is forcing major companies from iron ore to copper to sell off their assets to ease the pressure on their financial performance. Usiminas bonds due for repayment in 2018 were trading at 29.5 cents on the dollar on Monday.

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