Factbox: ArcelorMittal’s Italian business faces legal and financial difficulties

Factbox: ArcelorMittal’s Italian business faces legal and financial difficulties

(Reuters) – Italy’s government may put the former Ilva steel business under private management, Industry Minister Adolfo Urso told Reuters on Thursday, after its major shareholder ArcelorMittal rejected a state-backed plan to keep the group afloat.

The standoff over Acciaierie d’Italia (ADI), as the company is now known, is a major headache for Prime Minister Giorgia Meloni, as thousands of jobs in Italy’s underdeveloped south are at risk.

Here’s what went wrong and what could happen next.

WHAT IS ILVA/NAME?

Ilva was founded in 1905. Its largest plant took root in the southern city of Taranto in the 1960s. It produced more than 10 million tonnes of steel a year at its peak, but the group was placed under state control in 2015 following scandals over its appalling environmental record.

ArcelorMittal, the world’s second-largest steelmaker, took control of Ilva in 2018 and now owns 62% of ADI, while state investment agency Invitalia owns the remaining 38%.

About 8,200 people are directly employed at the steel plant in Taranto, and another 3,500 are employed in related industries.

WHAT HAS GONE WRONG?

The company never recovered from the dramatic decline of the past decade. Industry Minister Adolfo Urso told parliament on Thursday that ADI had missed production targets, producing less than four million tonnes of steel in 2023.

The company has pledged to decarbonize its operations, but it will cost billions of euros.

Last September, the government said it would fund 2.27 billion euros ($2.5 billion) worth of environmental initiatives, using European Union (EU) funds, in return for additional investment from ArcelorMittal, but the memorandum of understanding has been frozen for now.

ArcelorMittal complained that Roma did not follow through on investment promises it made in 2020 when Invitalia agreed to buy its stake.

The government this week proposed that Invitalia inject €320m into ADI and then increase its stake to 66%, as part of a wider plan to bolster the company’s capital.

However, ArcelorMittal rejected the offer, refusing to guarantee that it would provide additional investment as a minority shareholder.

A source close to ArcelorMittal said the group was ready to support the government’s plan, provided it continued with similar management powers to Invitalia.

But Urso said that such an option was not acceptable to the government either, in light of European state aid restrictions.

WHAT’S NEXT?

Urso said “drastic steps” were needed to restart ADI, adding that the government intended to draw up a national steel plan.

The case risks ending up in court, with both the government and ArcelorMittal accusing each other of failing to honor mutual commitments.

Among the possible short-term solutions the government is considering is to put operations under special management by appointing one or more commissioners to prevent ADI from closing.

This option would be similar to Chapter 11 bankruptcy in the US, which allows a business or individual to reorganize their debts and obligations. It could also help the government buy time while looking for a new industrial partner for ADI.

Unions are calling for Meloni’s group to be renationalised, which would conflict with Rome’s aim to reduce its stake in state-owned companies. It is also unclear whether the EU would sanction such a move or whether ArcelorMittal would go to court to block it. ($1 = 0.9121 euros)

(Reporting by Giuseppe Fonte and Angelo Amante Editing by Crispian Balmer and Keith Weir)

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