(Adds comments about Nippon position on Techint stake)
By Guillermo Parra-Bernal and Alberto Alerigi Jr
SAO PAULO, Feb 18 (Reuters) - The stock of Usinas Siderúrgicas de Minas Gerais SA slumped on Thursday after shareholders failed to agree on a plan to help the money-losing Brazilian steelmaker weather a slumping domestic economy and alleviate its swelling debt burden.
On a call to discuss fourth-quarter results, executives said controlling shareholders Nippon Steel & Sumitomo Metal Corp and Techint Group, an Italian-Argentine conglomerate, are studying steps to help Usiminas.
However, sources told Reuters that the companies refused to discuss the issues at a Wednesday board meeting, leaving a decision for March 3.
Nippon Steel and Techint agree that Usiminas needs fresh capital to weather the worst crisis for Brazil’s steel sector in years, Chief Financial Officer Ronald Seckelmann said on the call. Measures under analysis include a capital injection, loans from both shareholders or a subsidiary, and a debt refinancing deal, he said, without elaborating.
A source with direct knowledge of the issue said later in the day that Nippon was open to potentially buying Techint out of its stake in Usiminas. Moreover, Nippon wants to see only the smallest capital increase possible for Usiminas.
Non-voting shares fell as much as 11 percent to 0.89 reais, the steepest intraday drop in over two weeks. The stock had gained 15 percent in the three days prior to the release of quarterly results, on hopes that Nippon Steel and Techint would agree on a joint turnaround plan.
Investors worry that Usiminas, Brazil’s No. 1 listed flat steel producer and based in Belo Horizonte, will take too long to deal with both the recession and the shareholder dispute. The company posted a bigger-than-expected fourth-quarter loss after management had to cut the value of assets to account for the closure of a mill, worker dismissals and halted projects.
Late on Thursday, Japan’s Nikkei newspaper said Nippon Steel had kicked off talks with Techint to rescue Usiminas. The report, which did not cite any sources, said Nippon Steel would be willing to put fresh money in Usiminas and guarantee its debt.
“Given the extremely challenging business environment and very high leverage levels, any type of restructuring would be welcome to give Usiminas time to breathe as it focuses on improving operating performance and asset sales,” said Rodolfo Angele, an analyst with JPMorgan Securities.
Nippon Steel, which took over management of Usiminas from Techint late in 2014, tried to revamp operations by shutting a blast furnace and cutting costs. Yet, those steps failed to kick-start Usiminas, which is lagging rivals in Brazil.
Usiminas booked a combined 1.6 billion reais ($402 million) in asset impairments that resulted in a net loss of 1.626 billion reais ($408 million) in the fourth quarter. The number far exceeded the average estimate of a 464 million reais net loss in a Reuters poll.
Net debt rose 3 percent to 5.86 billion reais in December, with cash holdings totaling almost 2 billion reais. Leverage soared to about 20 times 12-month trailing adjusted operational profit - the highest among peers in Brazil.
Usiminas, which burned 350 million reais of cash last quarter, faces 1.9 billion reais in debt repayments this year.
“The clock is ticking for Usiminas,” said Leonardo Correa, an analyst with Banco BTG Pactual.
Net revenue fell 1 percent to 2.404 billion reais, in line with the poll. Earnings before interest, tax, depreciation and amortization were a negative 1.82 billion reais, about 22 times bigger than the poll’s estimate.
The accounting value of mining assets was written down by 1.2 billion reais, with the asset impairment in the steelmaking division totaling 357.2 million reais.
Seckelmann insisted that Usiminas is cutting expenses and investment rapidly to cope with stagnant revenue. Capital spending is expected to be half the amount spent in 2015, he added, noting that any asset sales may be feasible in the second half of this year.
Steelmakers in Latin America’s largest economy are also wrestling with the impact of what is expected to be Brazil’s longest and harshest recession since at least 1901 on the industry.
Last month, raw steel output and sales in Brazil fell 18 percent and 27 percent, respectively, versus a year earlier, the Instituto Aço Brasil, the group that represents mills, said on Thursday.
$1 = 3.9808 Brazilian reais Editing by Daniel Flynn, Tom Brown and Leslie Adler