January 10, 2017 / 9:42 PM / 2 years ago

UPDATE 3-Usiminas to challenge Sumitomo veto of unit's capital reduction

(Adds share performance, comments throughout)

By Guillermo Parra-Bernal and Alberto Alerigi Jr

SAO PAULO, Jan 11 (Reuters) - Usinas Siderúrgicas de Minas Gerais SA, the Brazilian steelmaker seeking to honor terms of a refinancing deal with banks, plans to legally challenge a shareholder veto on Tuesday that forbids it from using some of a mining subsidiary’s capital to jumpstart operations and repay debt.

In a securities filing, Usiminas said Sumitomo Corp , which owns 30 percent of the Mineração Usiminas SA subsidiary, vetoed reducing the unit’s capital by 1 billion reais ($313 million). The plan for Musa, as the unit is known, is part of a 4 billion real refinancing accord signed with lenders last year.

Usiminas, which needs Musa’s cash, will seek to annul Sumitomo’s veto through “valid legal means”. The veto risks worsening an ongoing rift between the steelmaker’s two top shareholders - Nippon Steel & Sumitomo Metal Corp and Techint Group’s Ternium SA.

A spokesman at Sumitomo Corp in Tokyo confirmed the trading firm had vetoed the proposal under a provision agreed between shareholders and after considering the future financial outlook of Musa. The Japanese company said it would continue discussions with Usiminas, but declined to comment any further on the topic.

Preferred shares in Usiminas shed as much as 4.8 percent on Wednesday, their biggest intraday plunge in six weeks, after the vote.

In a statement to Reuters, Ternium said the “unilateral decision by Sumitomo is extremely worrying,” and called on Usiminas CEO Rômel de Souza to “take all the necessary actions to tap the excess capital of the subsidiary before the deadline agreed upon with banks” in the refinancing accord.

Documents obtained by Reuters showed that Souza and Musa President Wilfred Brujin had unilaterally agreed to the use of Musa’s excess capital without the acquiescence of the steelmaker’s board. Souza is also the chairman of Musa.

The document from November showed that two Nippon Steel-appointed members of the Usiminas board suggested Musa could extend a loan to Usiminas to meet the refinancing deadline of June 2017.

A Nippon Steel spokeswoman in Tokyo declined to comment.

The impasse prevents Usiminas from tapping a much-needed source of fresh cash that Musa, in which the steelmaker has a 70 percent stake, does not need at the moment. According to a person with direct knowledge of the situation, Sumitomo invoked the use of a clause in the unit’s statutes allowing it to veto changes in Musa’s capital structure.

Ternium has called for the use of Musa’s excess capital as a way to revive Usiminas, which has struggled over the past two years with the impact of the shareholder dispute, Brazil’s worst-ever recession and a glut of flat steel.

$1 = 3.1955 Brazilian reais Additional Reporting by Yuka Obayashi in Tokyo; Editing by Paul Simao, G Crosse and Himani Sarkar

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