Arrium's collapse opens a rusty can of worms
Arrium, Australia's second largest steel producer has just gone into administration. Readers will remember this company as the steel business spun off from BHP in 2000, as OneSteel.
Without going into the entrails of this old-world company, W&D makes observations about the stakeholders:
The Big 4 Banks are in a bankers' equivalent of a slow-moving, lost-in-the-fog merchant vessel, holed below the waterline. They might lose the one billion dollars they lent, unsecured (!), to the company. W&D wonders why the hint of this impaired asset wasn't previously disclosed. And hence wonders what else is hidden from view?
The directors are running for cover. Their unwillingness to tackle, when times were better, the company's rust-bucket steel plant at Whyalla is a mystery. As is their purchase of overpriced assets using debt.
Artist's impression of Arrium's assets, to be sold
The shareholders have lost the lot. When delisted, the share price was two cents. Its post-GFC high was $3.45.
The workers in Whyalla steel mill are most vulnerable, with up to 1,600 jobs at serious risk. With a flow on to local suppliers. (Media reports of 7,000 are misleading - other than Whyalla, the other parts of Arrium should be okay).
The politicians are, of course, posturing. William Shorten wants to put in taxpayers' funds (good money after bad?). Malcolm Turnbull has rejected a government bailout. Christopher Pyne, Federal Industry Minister and South Australian MP, wants the banks to put in more money. Kim Carr, former Labor Party Industry Minister, wants a 'national steel plan' i.e. nationalisation.
W&D is still wondering why someone had noticed sometime ago that the Australian steel industry suffers from a very uncompetitive cost structure and a small domestic market. And that the future does not lie in this industry.