Embattled South Australian steelmaker Arrium has convinced the majority of its workers to take a 10% pay reduction, after its bankers rejected a $1.2bn bailout offer from US firm GSO Capital.
Arrium has in recent months been battling a towering debt pile, which has been worsened by the downturn in iron ore prices.
A group of roughly 20 lender banks almost universally rejected a debt buyout offer the board had accepted from GSO Capital.
GSO – the credit branch of US private equity giant Blackstone – wanted to pay the banks $1.2bn in exchange for Arrium’s debt, currently worth $2bn.
Not only did the banks reject this offer, they are also reportedly upset with Arrium for drawing on its loan facilities while it was negotiating the buyout deal.
According to one report in the AFR this week, some creditors are considering a push to remove the company’s current board, forcing it into voluntary administration, so it can be run by a new executive.
The company entered a trading halt on the ASX on Monday, pending the release of an announcement in response to the banks’ decision.
Meanwhile, the miner announced that the majority of workers voted for a pay-cut, in an effort to help keep their company afloat.
“I recognise that this would not have been an easy decision,” Arrium executive general manager Matt Reed said.
“The business values and appreciates the personal sacrifice that each of these employees has agreed to make.”
70% of employees voted to take a 10% pay cut and wage freeze at Arrium’s Pellet Plant, Whyalla Port and Ardrossan operations.
Just 42% of employees on Arrium’s Middleback Ranges EA voted in favour of the changes, meaning they will not occur there.
“This is a very disappointing outcome and means we will now need to make an immediate start on the consultation process to implement alternative cost saving initiatives to address the remaining gap in our labour costs,” Reed explained.
Federal industry minister Christopher Pyne said the government would continue to do what it could to help keep the company afloat.
“The Australian steel industry is facing substantial challenges primarily caused by the significant oversupply of steel,” Pyne said on Monday.
“The Australian Government has focused on the policy levers available to give Arrium every opportunity to transition in this difficult global market and we will continue this work.”
Pyne said recent government actions to help Arrium have included reform to anti-dumping laws, and bringing forward of the purchase of 72,000 tonnes of steel for the Adelaide-Tarcoola rail line.
“The Turnbull Government will continue to work closely with the South Australian State Government,” he said.
“This is an uncertain time for steelworkers in Whyalla and the Australian Government stands ready to assist.”
South Australian treasurer Tom Koutsantonis said the state’s Steel Task Force was speaking with all parties involved in keeping Arrium open.
“The workforce at Arrium and their wellbeing is our number one priority,” Koutsantonis said.
“Our target is to secure the steel works as a continuing operation to provide a period of certainty to achieve improved efficiencies and new investment.”