Stelco Granted Bankruptcy Protection
01/30
Stelco Inc., Canada's biggest steelmaker, was granted protection from creditors on Thursday as it joined other Canadian steelmakers that have succumbed to weak industry conditions.
The company said it was forced to make the move by its deteriorating cash position and a high cost structure that has made it unable to compete effectively. Although Stelco still produces the most steel among Canadian companies, it has fallen behind rival Dofasco Inc in revenue terms.
An Ontario court granted Stelco bankruptcy protection under Canada's Companies' Creditors Arrangement Act, the equivalent of Chapter 11 bankruptcy in the United States. Stelco can keep operating while it tries to file a restructuring plan.
"Recent increases in steel prices have not been, and are not expected to be, sufficient to offset the even more significant past and projected escalation in our costs," Courtney Pratt, Stelco's chief executive, said in a release.
"While we have begun to implement a number of cost control measures, we do not and will not have the liquidity we need without the legal protection and other benefits provided by a Court-supervised restructuring process."
Stelco's major steelworks are located in Hamilton, Ontario, making various semi-finished, hot-rolled, cold-rolled and coated sheet steel products, plus bars and rods; has 4,829 employees in Hamilton. Customers in automotive, appliance, energy, construction and other sectors. The steelworks receive bulk material by Great Lakes freighters.
Stelco Lake Erie produces hot-rolled sheet products and employees 1,382 in Nanticoke, Ont. Customers include the auto sector, plus pipe and tube products makers.
The United Steelworkers union said it was prepared to play a leading role in the company's restructuring but warned a key issue will be protecting the pensions of retirees.
Shares of Stelco plummeted C$1.14, or 66 percent, to 59 Canadian cents on the Toronto Stock Exchange before recovering slightly to 90 Canadian cents. With more than 13 million shares changing hands, the stock was trading well above its average trading volume.
The decision to seek protection under the courts did not surprise many industry analysts, who had been expecting the decision for months. Some said Stelco would run out of cash before the end of 2004.
The company, which lost C$168 million ($126 million) in the first three quarters of 2003, is scheduled to report results for its fourth quarter on Feb. 17.
Although details of the restructuring process are limited, analysts say Stelco should survive and escape as a company with significantly lower costs.
"We still have to see how the restructuring goes through and what emerges from it," said Paul D'Amico, an analyst with National Bank Financial. "But if they are able to attract capital and make investments then they should be okay."
Stelco is the third Canadian steel producer to enter bankruptcy protection in the past eight months, joining Slater Steel and Ivaco Inc.
Reported by: Frank Frisk
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