Message to Federal Government
An Open Letter Response to Federal Minister of Grey MP Rowan Ramsay
by an ASU Member
Date: 21st April 2017
Thanks for your considered response Rowan. However, I am deeply troubled by your reasoning for the need to sell Arrium. Your statement of "WE are approaching the final stages of finding a new owner for the Arrium assets ..." is contradicting your point that "neither the State or Federal Government is selling Arrium...”. It is apparent that the South Australian government and politicians including yourself have been actively involved in promoting and facilitating the sale of Arrium alongside the administrators before Foreign Investment Review Board (FIRB) and the Federal Treasurer can assess the impact of such sale and its subsequent impact on national interest.
In relation to your statement "it is being sold by the creditors, the workers, banks and businesses that have supplied Arrium to try and recoup some of their losses." The creditors chose to sell based on the administrators' advice which is highly questionable, because of the potential conflict of interest between maximising the return for stakeholders and maximising fees generation for the administrators and their advisors. KordaMentha is currently being sued by Griffin Coal Mine ( https://thewest.com.au/business/griffin-coal-mine-sale-advice-ignored-ng-b88407978z) and Jane Cameron (http://www.afr.com/brand/rear-window/jan-cameron-takes-korda-mentha-to-court-in-dsg-fee-dispute-20170411-gvicqi#ixzz4e4cXcJUO ) for deceptive conduct. Although these cases have not been to trial and proven, it is prudent for the creditors committee including the governments to exercise precautions and duty of care by commissioning an independent review of the Arrium administration and the conclusions recommended to creditors by the administrators and incorporated in the various Deeds of Company Arrangements. https://www.change.org/p/malcolm-turnbull-arrium-call-for-independent-review-protect-national-interest.
In relation to your statement "Arrium went broke and was placed in the hands of an administrator selected as the final act of the Arrium Board" The Arrium board placed the business into voluntary administration not voluntary liquidation, because Arrium was likely to become insolvent within the next 12 months, not because it went broke. Arrium had not defaulted any repayments due to creditors up to that point. According to CORPORATIONS ACT 2001 - SECT 435A The object of voluntary administration is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence--results in a better return for the company's creditors and members than would result from an immediate winding up of the company. However the administrators seem to have done this in reversed order and never give the existing company, largely owned by the Australian public, any chance of continuing in existence under that ownership structure. Given the substantial surge in iron ore and steel prices and profitable trading of the company over the past 12 months, the shareholders group instigated number of recapitalisation proposals that would see the survival of the company as an independent listed entity. However the administrators denied fair assessment on these proposals thus denied the opportunity for all stakeholders to achieve a better outcome from the administration.
In relation to your statement "While the premise that the shareholders will ever receive consideration for their investment cannot be ruled out, it is highly unlikely. They are effectively the last in a long list that would receive a return." Different creditors may have different priorities. However, they do have one thing in common that they were presented with only one option by the administrators, that is to sell. The administrators’ decision to proceed with the sale of Arrium Australia (in particular sale to foreign trade buyer) despite numerous recapitalisation proposals are seen to be in breach of the statutory duty of care to the Arrium stakeholders and against the public interests but instead serves for the financial interest of their own and their advisors through a prolonged period of administration. Not only shareholders but also creditors are victims of this administration. The Australian Insolvency Laws should not be seen to be authorising a sale or re-organisation thereby eliminating the equity interest of shareholders, the public interest, the employment conditions of workers by sale of the business and dissolution of a prosperous company.
In relation to your statement "...The Administrator called widely for bids. ... Given that we need an owner ... obviously the only choice is an overseas investor" Arrium does not need to be sold in the first place and it does have an owner, it is currently owned mostly by the Australian public. Voluntary Administration does not automatically strip off shareholders ownership, a fact that seemly has been forgotten by the administrators and the governments. There is no justification to sell especially to foreign bidders. On one hand you said "We all understand the importance of steelworks to Whyalla and to Australia's independence and security..." on the other hand you said "It makes little difference who owns the steel business as ultimately it will employ Australians and supply the Australian market...". The is absurd! Going by this logic, the Foreign Investment Review Board does not need to exist. Foreign ownership has a great impact on Australian taxation revenue, steel supply pricing and working conditions of the workforce.
In relation to your statement "The Federal Government ...has already spent more than $120m...bringing forward the re-railing of the Adelaide – Tarcoola line and providing finance for two new benification plants ...These investments have been instrumental in returning Arrium’s Whyalla assets to profitability and greatly increasing interest in the sale." I am glad you acknowledged that Arrium is now profitable but astonished that you think it's ok to take this profitable business away from its legitimate Australian owners and hand it to foreign owner and your idea of government assistance only served the purpose of increasing interest in the sale. Arrium was subject to unfair market competition due to unrestricted dumping of cheap steel from overseas for a long period. As an eligible major employer and a business bearing significant national interest, Arrium did reach out to the Government for help. However, the government did not respond in a responsible and timely manner. The lack of or delay in action on the part of the Government is a major factor contributing to Arrium's short term financial stress and subsequent voluntary administration. This fact was acknowledged by then Industry Minister Pyne. Although government assistance came in far too late but this is appreciated and has helped Arrium returning to profitability. It is time for Arrium to be returned to its legitimate Australian owners. Arrium is unlikely to achieve a fair sale price for that it is presented as if it had to be sold.
In relation to your statement "To answer your question as to whether there are options that would see Arrium re-financed, I think not. I am sure you are aware that the steel plant is in dire need of very significant investment, so barring the idea that the government was to become an owner of the plant (something that would be a very bad idea), then a sale in inevitable. As I said earlier, the banks in particular will want to maximise their return and exit their investments. Considering their likely losses, their appetite for new investment in steel is likely be less than low" The same major banks are still lending monies to other steelmaker Bluescope and many other major miners in Australia. The government and the big 4 banks have the power to do the right thing by the Australian public if they choose to do so. The Australian government and banks are empowered by the public and they must have their commercial interests aligned with their social responsibilities. You stated that steel plant is in dire need of very significant investment yet happy to sit and watch the administrators and advisors extracting millions in the prolonged administration and sale process. These fees have or will exceed the capital requirement for an upgrade of the steelworks; You object outright the idea of government co-investment and adhere to the free enterprise ideology yet happy to give socialist favour to foreign buyers by throwing taxpayer money for upgrading the plant without claiming any interest in the business. You stated that the banks appetite for new investment in steel is likely to be less than low. However Arrium does not require any NEW investment from the banks; it simply needs the existing debt (which has been significantly reduced by the proceeds from sale of Molycorp and the profits from trading over the past 12 months) to be refinanced. This can be achieved by a financing package similar to Port Pirie NyrstarModel. With estimated EBITDA of $350-500 million, Arrium can easily service its debt and upgrade steelworks from retained profits in due course. There is absolutely no excuse for selling Arrium and an independent review in Arrium administration is a matter of urgency.
An ASU member
