June 15, 2012 / 8:41 PM / 6 years ago

Brazil may bar Thyssen unit sale to foreigner-source

* May prevent sale of majority stake, source says

* Thyssenkrupp wants to exit CSA as costs, loss soar

* CSA is venture between Thyssenkrupp, Brazil’s Vale

* Thyssenkrupp, Brazil government declined to comment

By Rodrigo Viga Gaier

RIO DE JANEIRO, June 15 (Reuters) - Brazil’s government wants to prevent German steelmaker Thyssenkrupp from selling its majority stake in local slab-making joint venture CSA to another foreign company, a source with knowledge of the situation told Reuters.

Government officials have contacted local steel groups to assess their appetite for a stake in CSA, which is 73 percent owned by Thyssenkrupp, said the source, who declined to be cited because of the sensitivity of the issue. Vale, the world’s largest iron ore miner, owns the remainder of CSA.

“There is a government push to ensure that the company ends up in Brazilian hands, but in the end what will govern the decision will be the economics and market aspect of the deal,” the source said.

Officials at Brazil’s Trade and Industry Ministry and the presidency declined to comment, as did press representatives for Thyssenkrupp and Rio de Janeiro-based Vale.

The situation is the latest example of a trend started under former President Luiz Inacio Lula da Silva, who helped engineer the creation of conglomerates made up mostly of local companies in sectors deemed as strategic, such as food processing, mining, oil and telecommunications.

President Dilma Rousseff, Lula’s political protégé and his successor, has reinforced that trend by granting Brazilian companies generous tax cuts and access to lending through state banks. Last month, state development bank BNDES eased limits on loan exposure to Vale, in a move that many analysts interpreted as a step toward allowing the mining company to buy Thyssenkrupp’s stake in CSA.

According to the source, the government started looking for alternative bidders for CSA among local groups after Thyssenkrupp Chief Executive Heinrich Hiesinger said he would offer the Brazilian plant to Vale and possible buyers in Asia.

The source declined to identify the local steel companies that the government contacted regarding CSA.

VALUE TUMBLING

Recent media reports said that South Korean steelmaker Posco could be interested in Thyssenkrupp’s mills in Alabama - the other leg of the investment. Under Thyssenkrupp’s original investment plant, CSA would produce slabs that would be sent by ship to Alabama, where they would be processed into higher-quality products.

The giant CSA mill, the largest foreign investment in Brazil in the last decade at an estimated cost of $9 billion, has been operating for more than two years but is now worth about $5 billion, in the opinion of some analysts. Both Thyssenkrupp and Vale began construction of the CSA mill in 2005.

The plants in Brazil and Alabama were meant to give ThyssenKrupp a strategic foothold in North America at the time, just as the automotive and non-residential construction sectors were picking up in the Unites States. ThyssenKrupp estimated the total cost of the CSA and Alabama compounds at $15 billion.

ThyssenKrupp has struggled with delays and cost overruns that led it to report a loss last year. The German steelmaker has also been unable to escape from the bleak outlook clouding steelmaking in Brazil, as rising raw materials costs and a glut of slabs have sapped margins and hindered factory usage.

Finding a buyer for CSA could be difficult because of the current market for slabs, the mill’s main product, faces a global glut, and a consolidation of Brazil’s steel industry has left potential buyers short of cash.

Buying CSA could pose a potential problem for Vale, which has been trying to increased guaranteed sales of iron ore by helping foreign steelmakers set export-focused mills in Brazil. Plans to help Chinese mill Baosteel build a plant in Brazil fell through over construction and operational costs.

Vale has had to take on a larger-than-expected share of a slab venture with South Korean steelmakers in Brazil’s Northeast because of waning foreign interest in those projects and rising costs. Vale has also faced pressure from the Brazilian government to enter the steel market to help create jobs.

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