Clabecq rescue poses first test for steel rules

Date: 19/06/1997

PLANS to rescue ailing Belgian steel company Clabecq look likely to pose the first test for tougher new rules on subsidies to the sector and governments' promises not to rewrite them.

Even before Italian-Swiss steel trader Duferco has finalised its plans to take over the steel plate producer, British steelmakers have written to the European Commission's Directorate-General for competition (DGIV) demanding that it freeze all subsidies for the deal and subject it to close scrutiny.

The UK Steel Association has for the first time invoked a clause in the new steel aid code which allows the Commission to freeze any subsidies while an investigation is pending.

The new code was agreed unanimously by EU ministers in November last year and came into effect in January.

The association has also underlined the commitment given by all governments not to take the heavily trodden path of making exceptions for certain steel aid cases and waiving the ban on subsidies.

“The UK steel industry regards Clabecq as a test case of the Commission's determination to use its new powers,” said a spokesman for the association.

Rival steelmakers are not only worried about new subsidies associated with Duferco's current take-over plans, but are also concerned that Clabecq has not complied yet with past Commission demands to repay illegal aid.

They claim that there is no evidence that Clabecq has repaid past packages of aid from the Walloon regional government totalling around 38 million ecu, with the steelmaker's bankruptcy being used to avoid the sale of stock, equipment or assets to cover some of the debts.

Duferco plans to acquire Clabecq for a symbolic 1 Belgian franc. “What will happen to Clabecq's past loans? One symbolic franc will not go very far towards satisfying Clabecq's creditors,” said the UK Steel Association spokesman.

The latest 'miraculous' rescue of Clabecq - as it has been described by Walloon region President Robert Collignon - involves the Société Wallonne pour la Sidérurgie (SWS), an arm of the regional government, taking a 25&percent; stake in the new company, with the rest being accounted for by Duferco. In addition, SWS will underwrite a subordinated loan of around 12 million ecu.

Duferco intends to keep on half of Clabecq's current 1,800 employees, expects to sign a five-year peace treaty with the plant's turbulent workforce, and wants to produce around 1 million tonnes of steel a year, with a gradual improvement in the quality.

It is investing 24 million ecu and proposes to open a credit line of 63 million ecu as well as underwriting any pollution claims connected with Clabecq's site.

The bid to salvage the steelmaker took a big step forward last week when administrators of the bankrupt company agreed to back Duferco's offer. However, it must still win the support of local legal authorities and the employees.

Although this mixture of private and public rescue cash will have to be scrutinised by the Commission, its backers believe that the fact that a private company is investing its own cash will help to win clearance for the package.

Other steelmakers question what exactly Duferco is up to. Clabecq makes low quality steel, more than enough of which is already flooding on to the European market from east Europe.

“As a trader, perhaps it wants to reduce its reliance on its suppliers,” said one industry observer. In recent years, Duferco has embarked on a spending spree, picking up steel companies in Thailand and Italy and trading activities in the US.