Corus to unveil rescue fund raising

City expects discounted rights issue for troubled Anglo-Dutch steel maker to fund restructuring plan
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The Independent Online

Corus, the embattled Anglo-Dutch steel maker, was poised last night to unveil a rescue rights issue which may raise as much as £450m. An announcement could come as early as today, say City sources.

According to yesterday's stock market speculation, the fund raising will see Corus launch a one-for-one rights issue priced at a heavily discounted 15p a share and underwritten by its stockbroker, Cazenove.

Sources close to the deal, however, suggested that the rights issue could be closer to 20p. Corus shares closed 1.75p higher at 26p yesterday.

One thing without doubt is that Corus desperately needs an injection of cash. It is heavily loss-making and is weighed down by a debt burden estimated to be in the region of £1.4bn. Philippe Varin, who was appointed as chief executive of Corus in May, has indicated the company will need at least £250m with which to fund his proposed restructuring programme.

Mr Varin, a man with 25 years of experience at the French aluminium producer Pechiney, has dubbed the turnaround plan Re-storing Success. His proposal is a two-phase plan. Phase one will see Corus focusing production on three sites: Rotherham, Scunthorpe and Port Talbot. Phase two will decide the future of the group's Teesside operations.

The company had hoped to raise a substantial amount of cash from disposals, but this largely seems to have failed. One strategy, which has been dropped by the company, envisaged the sale of the group's aluminium business. Such a deal would have raised as much as £600m for Corus but was stopped in its tracks by protests from Dutch workers.

Corus' last results statement, in September, certainly did not make pleasant reading for shareholders. The steel maker posted a pre-tax loss of £89m, although it did manage an 11 per cent rise in turnover to £4.2bn thanks to improvements in sales at both its aluminium and carbon steel divisions.

Analysts have argued for a long time that British Steel's merger with the Dutch-owned Hoogovens, which in 1999 created Corus, has been a disaster. The combined company has been loss-making since the tie-up and has made about 10,000 people redundant.

Meanwhile, speculators have had a bumpy ride betting on the group's share price. Earlier this year, Corus's share price collapsed to just 4p as the stock market started pricing in the possible bankruptcy of the company. Since that nadir, the stock has recovered strongly.

Its rise has been helped by the presence of the Russian businessman Alisher Usmanov on the group's shareholder register. He is currently Corus's third-biggest shareholder, with a 7 per cent stake held via a Cyprus-based company he controls. He is believed to have built up the bulk of his stake when Corus shares traded at below 10p and has said he would like to raise his holding to 10 per cent.

Mr Usmanov obviously believes that Corus is a good long-term investment and has even made suggestions as to how the company could cut some of its costs. The Russian businessman has argued that Corus would do well to buy cheap iron ore from the Russian iron ore producer Lebedinsky GOK, where he is also a major shareholder. This measure, he believes, would help Corus move back towards profitability. In a recent interview, Mr Varin indicated that he planned to meet Mr Usmanov to discuss the company's future.