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Durban - A bidding war between two companies to buy out the “hopelessly insolvent” Richard’s Bay-based Tata Steel KZN has been put to bed with a ruling by a Durban High Court judge sanctioning its sale to an international metals merchant with mining interests in South Africa, for R90 million.
The very unusual application for judicial intervention in a liquidation process was necessitated because the liquidators favoured one offer and the major shareholder, Tata India, another.
Judge Trevor Gorven had to decide which of the offers should be accepted so the liquidators could “protect themselves where there is a potential conflict”.
Tata Steel KZN, a high-carbon ferrochrome producer, employs 185 people, none of whom have yet been retrenched. It was placed under business rescue in July last year in an attempt to trade it out of trouble, but when that failed, it was placed into liquidation in January.
While the first meeting of creditors has not been held, the liquidators believe that it will benefit them and the employees if it is sold as a going concern.
Read also: Court battle over Tata Steel KZN
In his judgment handed down yesterday, Judge Gorven said the liquidators had initially started a non-binding tender process for the sale of the assets. The only proposal worth mentioning was from Pinetown-based X Moor Transport for just more than R62 million.
That company put up a deposit of R6 million. But the liquidators rejected that offer.
In their further dealings with other interested companies, they made negotiation subject to the payment of a 10% deposit of the proposed purchase price.
Luxembourg-headquartered Traxys Africa paid a deposit in February this year and made a final offer in May.
But in April, Precon Systems - which has links to India - came on the scene. This company refused to put up a deposit, but in May it received cession from Xmoor of its deposit.
“A representative of Tata India was involved in these negotiations and it was clear that it supported Precon,” the judge said.
But the liquidators preferred Traxys, hence their court application.
“Liquidators should be slow to have recourse to this option,” Judge Gorven said. “But it is justified in this matter.” He said creditors exceeded R2.2 billion and while Tata India had not proved a claim, it was the largest and only secured creditor.
Assessing the two offers, he said Traxys had offered R90 million and had set aside another R15 million for retrenchment costs. If that process cost less, the balance would be added to the purchase price.
Deposit
It had paid its deposit of R14 million immediately, provided a guarantee for payment and had undertaken to pay the running costs of the company of R500 000 a month until the completion of the regulatory process, including getting permission from the Competition Commission which could take months.
The company had access to chrome ore at cost through its investment in a local long-life mine. It also had an experienced metallurgical team.
Precon offered R95 million and, while it accepted it would be liable to pay retrenchment costs, the purchase price was set.
“Precon seemed to rely heavily on what it terms its relationship with X Moor, but it has no directors in common and no details are given about how it will provide financial assistance,” he said.
The judge said Tata India, as a creditor, did not have an ultimate say in how the assets of the company should be realised “and it is clear the offer from Traxys should be approved”.
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- [Editor:sunzhichao]
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