CSN sells up to 11% of mining unit, continues to eye InterCement | Business

The sale of the minority stake includes a 20 to 30 percent premium to the mining company's current share price on Brazil's B3 stock exchange, according to sources. CSN shares ended Wednesday's session up 2.23% at R$11.94, while CSN Mineração shares fell 0.67% to close at R$5.91.

Based on Tuesday's closing price, the 11% stake is worth around R$3.6 billion, with the premium bringing the total value of the deal to over R$4.3 billion. However, people close to the deal noted that several steps remain to complete the deal, including signing a definitive agreement and receiving approval from Brazil's antitrust regulator CADE. The deal is expected to close within 30 days.

CSN had previously indicated its intention to sell part of its mining business and seek a minority partner for its energy division to reduce debt. Itochu already holds almost 10% of CSN Mineração's shares.

In June, CSN's net debt to adjusted EBITDA ratio was 3.36, reflecting the depreciation of the real in the second quarter and higher investment levels. The company's goal is to reduce this ratio to one to two times. Adjusted net debt totaled R$37.2 billion at the end of the second quarter.

For analysts at Itaú BBA and Bradesco BBI, the sale of 11% of CSN Mineração at Tuesday's closing price would reduce financial leverage by 0.3 to 0.4 times, which, in their opinion, is modest compared to CSN's target is.

In parallel with the mining sale, CSN is continuing negotiations to acquire InterCement, owned by Mover (formerly Camargo Corrêa). The exclusive agreement was renewed this week, with sources close to CSN expecting the deal to be signed by December.

Negotiations are progressing, but pressure remains on Mover shareholders to fully assume the liabilities associated with the deal, which total R$4 billion. Originally, part of this amount – R$1.5 billion – was supposed to be covered by creditor banks, said a person close to InterCement.

Another sensitive issue for CSN is the involvement of lawyer Thomas Felsberg as an advisor in the transaction, as he is known for carrying out corporate restructuring of insolvent companies.

People with knowledge of the situation said InterCement's out-of-court restructuring process is progressing and there is no immediate risk of a bankruptcy filing.

If the company seeks protection from creditors, asset sales would occur through production units.

CSN is interested in acquiring InterCement's Brazilian operations, which would position the company alongside Votorantim as a competitor for leadership in the cement sector, as well as a 51% stake in Loma Negra, which would allow CSN ​​to enter the Argentine market.

A person involved in the negotiations said CSN did not plan to finance the acquisition with cash or take loans given InterCement's high debt levels. Instead, as part of the out-of-court restructuring, CSN is seeking to restructure InterCement's liabilities, with part of the purchase price financed through debt capital.

A further portion of InterCement's debt would be converted into equity in the resulting company, created by the merger of CSN Cimentos and InterCement, with the creditor banks holding shares. While an agreement is expected to be signed by the end of the year, the transaction itself is expected to close in 2025.

Negotiations gained momentum at the end of the first half with the automatic extension of CSN's exclusivity agreement. In August, InterCement initially refused to extend the contract, but discussions continued and a new exclusivity agreement was signed in September.

In addition to InterCement's heavy debt load, sources also pointed to CSN's financial leverage and relative delay in selling assets that could improve liquidity as hurdles to the takeover. In the case of CSN Mineração, volatility in iron ore prices this year has dragged out discussions with potential buyers. Negotiations related to the energy business of CSN, including Rio Grande do Sul-based CEEE, were also affected by damage caused by heavy rains in the state in May.

In 2021, Mr. Steinbruch's company acquired the Brazilian assets of Swiss cement producer LafargeHolcim in a transaction fully and unconditionally approved by CADE. This increased capacity by 10 million tons and made CSN the third largest cement producer in Brazil.

According to the National Cement Industry Union (SNIC), Brazil sold 62 million tons of cement in 2023, a decrease of 1.7% compared to 2022, which already saw a decrease of 2.8%. The quantity sold in 2023 is the same as in 2011.