By Alex MacDonald

 

LONDON--Steel giant ArcelorMittal (MT) said Wednesday it entered into a preliminary agreement to exit its three Algerian investments as part of a plan to streamline its portfolio of assets and pay down debt.

Under the agreement, the Luxembourg-based steelmaker, the world's largest by output, will transfer to Algeria's state-owned IMETAL its 49% stake in both an integrated steel mill called ArcelorMittal Algeria and two iron-ore mines that constitute ArcelorMittal Tebessa. It will also transfer to IMETAL its 70% stake in its steel-processing facility called ArcelorMittal Pipes & Tubes, such that the Algerian government will become the sole shareholder of all three units.

The deal is in keeping with the Algerian government's ambition to expand its steel industry at a time when ArcelorMittal is paring back spending on steel projects, cutting costs and selling assets to pay down a heavy debt load. The company is restructuring its U.S. and South African businesses amid excess steel supply globally and waning demand in several of its key markets, including Africa.

An ArcelorMittal spokesman declined to provide any financial details about the deal, which is expected to be completed in coming weeks.

ArcelorMittal's exit from its Algerian investments marks a stark change from two years ago when it jointly announced with the Algerian government a $763 million plan to more than double the steel-production capacity of their jointly owned Annaba steel plant on the northeast coast of Algeria. The project, which would have been largely financed by the government, aimed to boost the steel plant's production capacity to 2.2 million metric tons of steel a year by 2017 from less than 1 million tons in 2013.

North African steel demand, however, has remained stubbornly weak due in part to continued conflicts in the region, which have dented economic growth, according to steel consultancy firm MEPS International Ltd. "The steel industry in general is not in the best of shape," said Kaye Ayub, a MEPS analyst.

Algeria, Africa's fifth-largest steel-making nation, produced an estimated 415,000 tons of crude steel last year, down 0.5% from the previous year and 17% below 2012's level, according to data from World Steel Association.

Nevertheless, the Algerian government still intends to push ahead with the steel plant's expansion plans.

"This agreement will allow the Algerian party to have total control of the three companies...which will facilitate decision making and mobilization in particular of financial resources to ensure the success of the revamping and the start-up of operations in good conditions," said Davinder Chugh, head of ArcelorMittal's Algerian operations.

As part of the deal, ArcelorMittal has agreed to continue providing technical support for the implementation of the expansion project.

 

Write to Alex MacDonald at alex.macdonald@wsj.com

 

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(END) Dow Jones Newswires

October 07, 2015 11:22 ET (15:22 GMT)

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