The Industrial Development Corporation (IDC) is reportedly in talks to acquire ArcelorMittal South Africa (AMSA) at a potential price of about R8.5 billion.

But the state-owned development financier does not want to go it alone. It intends to team up with one or more strategic investors to take over AMSA — once a symbol of South Africa’s steel-making prowess.

This potential transaction follows AMSA’s announcement earlier this year that it planned to close its loss-making long steel mills in Newcastle (KwaZulu-Natal) and Vereeniging (Gauteng). If a deal does not materialise, the plants face an inevitable closure, which could result in 3,500 AMSA employees losing their jobs.

There are also fears that the closure could disrupt the supply to steel-consuming industries, particularly automotive, construction, mining, energy and transport. These industries consume long steel that is produced by the mills in Newcastle and Vereeniging.

Last year, AMSA turned down an offer for a controlling stake — or full ownership — from a little-known investment company, Networth Investments, saying the proposal was not firm or bona fide. By contrast, AMSA is engaging the IDC as a serious suitor.

The IDC, which currently owns 8% of AMSA, has reportedly been negotiating with the company’s Luxembourg-based parent, ArcelorMittal, regarding a full takeover — a move that could bring control of the AMSA back into South African hands.

ArcelorMittal, controlled by Indian billionaire Lakshmi Mittal, holds 53.1% of AMSA. Other AMSA shareholders include BEE partners Amandla we Nsimbi (16.73%) and the Isabelo Employee Share Trust (5.02%).

Curiously, no black investors have publicly put up their hands to join a full takeover of AMSA. Not even the existing BEE partners have indicated an interest in stepping up alongside the IDC. This lack of appetite likely reflects reluctance to assume operational responsibility for a loss-making steel giant.

A takeover of an industrial firm like AMSA demands substantial capital, restructuring expertise, and the ability to manage and mitigate risks related to labour, energy and logistics — challenges that have bedevilled South African operators for years.

The reality is that many black-owned businesses do not have access to the scale of funding required to acquire a company of AMSA’s size unless they partner with an institution with deep pockets, such as the IDC.

Moreover, prospective black buyers may lack the negotiating clout to secure favourable terms compared with large global players or established local corporates. There are rumours the talks between the IDC and ArcelorMittal are bogged down over AMSA’s valuation and the assumption of its debt.

Reports suggest AMSA has received offers of up to R7 billion, which ArcelorMittal has dismissed as too low. As of 31 December 2023, AMSA’s net debt stood at R3.3 billion — a figure that has likely risen given recent financial pressures facing the steelmaker.

The IDC is among AMSA’s creditors. This year, it extended R2.6 billion in emergency funding to avert immediate closure of the Newcastle and Vereeniging mills — a move that safeguarded 3,500 jobs and maintained supply to downstream users of long steel. The package included an interest-free loan of R1.68 billion.

If black South African investors step forward and participate in an AMSA takeover, it would send a strong signal that the government’s Black Industrialists Policy (BIP) is coming of age, or at least, it is bearing fruit.

Launched in 2015, the now decade-old programme has faced public scepticism, in part because BIP is seen as a by-product of broad-based black economic empowerment (B-BBEE), which many South Africans argue has had limited success in narrowing the country’s wealth inequality.

Even so, the government has continued to back the BIP with funding for emerging black industrialists, in the hope they will graduate to operating large-scale enterprises. In 2022, a 104-page government report revealed that the IDC and the National Empowerment Fund (NEF) channelled R32 billion to 793 black industrialists between 2015 and 2020.

The IDC has stepped up over the last two years, injecting about R33.4 billion into black-owned and -operated ventures. If this level of industrial financing is maintained, more black entrepreneurs will have the confidence — and capital — to acquire large industrial businesses.

Dominic Sewela, the current CEO of Barloworld, is proof that black South Africans can successfully run big industrial companies. Sewela is part of a consortium — alongside Saudi Arabia’s Zahid Group — that has completed a management buyout (MBO) of Barloworld for about $1.3 billion (R23 billion).

The Competition Commission gave the acquisition the green light, paving the way for the consortium to take control of Barloworld.

Founded in 1902, Barloworld is one of South Africa’s oldest industrial companies. It supplies earth-moving equipment and machinery to the mining and construction industries. The company is best known as Africa’s largest Caterpillar dealer and also has operations in Europe, Asia and Australia.

The successful completion of the transaction will elevate Sewela into becoming one of the most influential industrialists in South Africa and beyond.

AMSA, established in 1928 as a state-owned enterprise, is a strategic asset fundamental to South Africa’s future industrial development. Whoever ends up owning it will wield significant influence over the country’s industrial base.

The “for sale” sign over AMSA presents ambitious black industrialists with a rare opportunity to step forward and show they are ready to play in the big league. They could — and should — be the IDC’s strategic partners in the looming AMSA acquisition.

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