Acindar Industria Argentina de Aceros S.A.

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Acindar Industria Argentina de Aceros S.A.

ACINDAR’S STRUGGLE FOR INDEPENDENCE: 1942–78

TWO DIFFICULT DECADES: 1980–2000

ACINDAR’S STRUGGLE FOR INDEPENDENCE: 1942–78

Argentina had no steel producer when World War II broke out, and as the war continued, the economy was seriously affected by the supply shortage, especially of rods used in construction. Faced with the situation, Arthur Acevedo, an engineer, enlisted the companies Acevedo y Shaw and Compañia de Construcciones Civiles de Aguirre y Aragón in conversations about establishing a plant for the production of steel. Acindar was incorporated in 1942 for this purpose.

Most of the equipment had to be imported from Chile and transported over the Andes Mountains. Other scrapped articles, such as parts from old locomotives and tractors, were returned to service since replacements were impossible to obtain. A small Siemens Martin furnace was installed in the plant, located in Rosario, and steel production began in 1944. Two years later, the Chilean investors in the company were bought out by Argentines, and in 1948 Acindar made its initial public offering of stock in the Bolsa de Comercio, the Buenos Aires stock exchange. By 1951, when the company produced 100,000 metric tons of steel, a bigger plant was needed, and in that year a new mill opened in Villa Constitución, Santa Fe.

During the ensuing years the company added a foundry (Acinfer) to produce steel rails for railroads, a factory (Acinplast) for plastic pipes, and a company (Ar-metal) to stamp pieces for the auto industry. In 1962 Acindar joined with a member company of West Germany’s Thyssen group to establish Marathon Argentina S.A., a firm dedicated to producing special steels. Acindar bought out its partner ten years later.

The Argentina government had established, after World War II, a larger steelmaking enterprise known by its acronym, Somisa. This enterprise, unlike Acindar, was fully integrated, meaning that it was engaged in all processes of steelmaking, from obtaining iron ore to turning out all finished steel products. Acindar was not allowed to expand its activities and engage in full competition with Somisa until 1975, when a federal decree finally authorized the company to integrate its production operations. In 1978 Acindar opened new installations, including its own port for bringing in minerals, a plant for converting iron ore into sponge iron by means of the direct reduction process, followed by conversion to molten steel in three electric furnaces, and then to semifinished products by two continuous casting units.

With integrated facilities for making steel, including its own port facilities, Acindar could import its own iron ore for conversion into sponge iron and no longer was as dependent on others for scrap iron, not easily available in Argentina. The company’s direct reduction process relied on natural gas, readily available in Argentina, rather than coking coal, which had to be imported. In addition, Acindar no longer depended on Somisa for semifinished products such as billets (squarish pieces of steel) to turn into its own finished steel products. By 1980 it was producing more than 500,000 metric tons of steel per year. The quality of its steel improved noticeably with a feedstock of imported iron pellets.

TWO DIFFICULT DECADES: 1980–2000

In 1981 Acindar absorbed three smaller steel producers: Gurmendi S.A., Genaro Grasso S.A., and Santa Rosa S.A., issuing one-third of its shares in payment to the stockholders of these companies. Weak domestic demand, competition from state-owned enterprises, and the fall of international prices because of overproduction, were some of the reasons that steelmaking was being concentrated into fewer hands. The eight plants of the amalgamated group were quickly reduced to four in three locations. The acquisition buttressed Acindar’s domination of the non-flat steel market in Argentina, which reached about 70 percent of the total. It was the national leader in profiles, wires, cables, and steel bars and rolls for concrete, and it was the chief exporter in the steel sector.

This expansion involved taking on a heavy load of debt, which reached $740 million at the end of 1981, when the Argentine economy was buckling under the impact of a world economic recession. Repeated peso devaluations, hyperinflation, and the disastrous Falkland Islands war followed. Yet Acindar continued to turn a profit until 1985, when, for perhaps the first time, it fell into the red and the value of its shares of common stock nosedived. By this time, the company was the private sector’s largest debtor, with $370 million in commercial bank loans in which more than 70 banks were involved. Arrears in interest payments, amounting to $60 million, dated back to 1982. A restructuring agreement was reached in early 1987. Soon after, Acindar made a deal to buy back $56 million of its debt at 25 cents on the dollar, and in 1988 it was able to issue a fully underwritten equity offer.

As the Argentine economy weakened yet again in the late 1980s and once more experienced hyperinflation, it made more sense for Acindar, which was still heavily in debt, to look abroad rather than at home for sales and profit. Shortly after Carlos Menem took office as president of Argentina in 1989, the government adopted an economic policy that stabilized the peso at a level relative to the dollar that made exports of Acindar’s steel uncompetitive. Menem’s government also privatized many state-owned companies, including Somisa, which became Siderar S.A.I.C., and this proved useful to Acindar, since the newly privatized company decided to eliminate its production of non-flat rolled steel, allowing Acindar to consolidate its virtual monopoly of that market subsector. (It also held the 10 percent of the market for hot rolled flat products not held by Siderar.)

COMPANY PERSPECTIVES

Vision: To exceed the expectations of our customers. To contribute to the personal development of our people. To increase the profitability of our investors. To develop sustainable relationships with our suppliers. To collaborate with the welfare of our community.

The restructuring of the steel industry reduced the labor force by almost half between 1989 and 1994. Acindar was one of the companies that took a tough line. In 1991, it broke agreements with the metalworkers’ union by obliging machine operators to be responsible for the maintenance of their own equipment. After a work slowdown at Villa Constitución, which had lost $60 million the previous year, and unsuccessful labor-management negotiations, the company fired all 3,000 of the plant’s unionized workers, leading to a temporary shutdown. By the end of 1992 the company workforce had been trimmed to 4,500, compared to 8,000 in 1988.

Acindar reversed its heavy loss in fiscal 1991 (the year ended June 30, 1991) and earned a slim profit in fiscal 1992. The liberalized economy was picking up steam, and Acindar impressed foreign investors as one of the lowest cost and most efficient producers of non-flat steel products in the world, characterized by rising productivity and superior technology. Its products were grouped in three areas: carbon steel; specialty steel, used mainly by the industrial sector; and finished products, primarily for construction and agriculture.

RECOVERY UNDER NEW OWNERSHIP

Yet, with a debt of about $400 million still hanging over its head, Acindar was poorly equipped to weather Argentina’s deep recession of the late 1990s, which continued into 2001 and resulted in the collapse of the peso. The crisis had devastating effects on construction, auto production, and farming and ranching, which accounted for the greater part of Acindar’s sales, and the company fell into the red in fiscal 1999, losing even more money the next year. Accordingly, the Acevedo family sold some of its stake in late 2000 to Belgo Companhia Siderúrgica S.A. (Belgo-Mineira), a Brazilian steelmaker. Associated transactions resulted in shared control of the enterprise between the two partners, who held 40 percent of the enterprise. The rest was held by public investors, except for 8 percent in the hands of the International Finance Corporation, an affiliate of the World Bank. By this time Belgo-Mineira was one of six companies in an industrial holding company that was merging with France’s Usinor to form the Arcelor group, the world’s largest steelmaker.

A few months later, Belgo-Mineira purchased securities convertible into common stock shares, raising its stake in Acindar to about 30 percent. Then it subsequently bought the remaining stake held by the Acevedo family, and by these actions held more than 70 percent of Acindar by early 2004. The company had defaulted on about $220 million of debt in November 2001, but had paid back some of that amount over the next two years. With the Argentine economy in strong recovery, Acindar was again profitable, earning about $207 million in 2003, when it ended at least four consecutive years of losses. It also had reached agreement with its creditors for the restructuring of the remainder of its debt. Acindar was producing steel to the limits of its installed capacity. Moreover, there were areas of synergy between its activities and those of Belgo-Mineira, especially in distribution. The two had created Abemex, a Rosario-based firm, to sell their products outside the Mercosur area of southern South America.

Arturo Acevedo remained Acindar’s chairman of the board even after selling the family shares to Belgo-Mineira. Interviewed for the Buenos Aires daily La Nación in 2006, he expressed concern over rising prices and possible shortages in meeting the company’s high consumption of electrical energy and its chief feedstock, natural gas. He said that the company was investing $150 million in a project to augment production capacity by 250,000 metric tons a year. During the year, the company raised $83.2 million by selling its two plants for the production of steel pipes and its cold formed profiles business. Acindar also took a half-share in an insurance and leasing joint venture, Acindar Pymes S.G.R., and paid out $34.2 million on its restructured debt. It ended the year with a handsome profit of ARS 604 million (about $198 million), its fourth consecutive annual profit, on net sales of ARS 2.78 billion ($911.48 million).

KEY DATES

1942:: Foundation of Acindar, Argentina’s first steel producer.
1948:: Acindar becomes a public company, its shares traded on the Buenos Aires stock exchange.
1978:: Acindar becomes fully integrated, capable of converting iron ore to finished steel products.
1981:: Acindar raises its debt level by acquiring three smaller steelmakers.
2000:: After two difficult decades and much red ink, Acindar sells stock to a Brazilian company.
2003:: Acindar returns to profitability and agrees to restructure its debt.

Production rose to 1.44 million metric tons of molten steel, all produced at Villa Constitución. Production of steel plates came to 1.43 million metric tons, and that of steel rods, at La Tablada, a suburb of Buenos Aires, to 173,662 metric tons. The company was also turning out such products as bars, rods, wires, and cables. It was also producing industrial bars in Jandira, São Paulo, Brazil. Other facilities provided services such as bending and cutting bars and rods for customers. Exports, which accounted for 30 percent of sales a few years earlier, represented only 13 percent of sales because of strong domestic demand. Total debt came to $450 million. Belgo-Mineira owned 66 percent of Acindar’s shares. Pension and retirement funds held 15 percent and public investors 19 percent.

Robert Halasz

PRINCIPAL SUBSIDIARIES

Acindar Agroindustrial S.A.; Acindar do Brasil S.A. Ltda. (Brazil); Acindar Pymes S.G.R. (50%); Acindar Uruguay I.A.A.S.A.; CDSA S.A.; Comercial Bagual Ltda.; Elmec S.A.; Performa S.A.