bne IntelliNews -

US group Esmark has submitted the only valid bid in the tender for the sale of 80% of Serbian steel mill Zelezara Smederevo, which was once part of US Steel and is still one of Serbia's largest exporters, Zelezara director Bojan Bojkovic said on January 9 as quoted by news agency Tanjug.

Bojkovic, who is also heading the commission in charge of Zelezara's privatisation, said two more bids arrived but they do not meet the tender conditions. He said the names of the bidders are not known yet, adding that one of the offers was sent by a local lawyer representing an unnamed consortium of foreign and domestic firms. 

Bojkovic said he expects the negotiations with Esmark to be completed by January 15-17 so that the privatisation contract could be signed on January 30-31. However, he noted that the privatisation agency will need to review Esmark's bid in greater detail before announcing the tender results.

For the Serbian government and Zelezara's workers, Esmark has been the preferred new partner ever since its founder and CEO James Bouchard said in late 2014 that the group is willing to invest $400mn in Zelezara and not to lay off any of its 5,000-strong workforce.

Prime Minister Aleksandar Vucic has said he believes that the privatisation could be wrapped up by the start of February. Serbia has been in a hurry to find a new owner of Zelezara as the company now costs some $10mn monthly to the state budget - which plunged into one of the highest fiscal gaps in Europe of close to 7% of GDP in 2014. Moreover, the government has committed to stop subsidising production at troubled state-owned firms including Zelezara as of 2015, as part of an austerity programme agreed with the International Monetary Fund.

Therefore the company's privatisation is considered a potential life saver for the company and the city of Smederevo where it is based, employing some 5,000 people. Vucic hopes that a successful and quick sale would also have a crucial impact on the overall Serbian economy in 2015 when GDP is expected to shrink by 0.5%, adding to the 2.0% drop in 2014. According to Vucic, with bigger production and exports from Zelezara, the country's economy might instead report growth this year.

Esmark aims for expansion

As Bouchard revealed in November, Esmark plans to invest $28mn in 2015 to restart Zelezara's second blast furnace, which has been idle for more than two years. In the next three to four years the plan is to invest a further $130mn.

Another $250mn would go to support Zelezara's capital in the first 18 months after the potential takeover to allow the company to buy all it needs to operate normally - more limestone, iron ore, coal and other resources, Bouchard has said.

Esmark will also work on finding new buyers for Zelezara's steel, as it plans to export some 25 tonnes monthly to the US. Esmark has acknowledged that Zelezara does not have the capacity to produce fine sheets for the automotive industry, but intends to rely on the products it is able to roll out, planning negotiations with potential clients in the EU and at 10 locations in the US.

Bouchard has also stressed that Esmark does not plan to reduce the current workforce but will probably not hire new people once some workers retire.

Curiously, if the US group becomes the new owner of Zelezara, part of the management of its former owner US Steel will return to the Serbian company since they are now employed by Esmark.

Troubled history

Serbia sold Zelezara under the name of Sartid to US Steel back in 2003 for $23mn. However, after the global crisis hit US Steel's European operations, Serbia was forced to buy back Zelezara for a token price of $1 in January 2012. It has been seeking a new partner since then and two sales attempts have failed so far.

The government has pledged to clear Zelezara of its debts, some €370mn, once the sale is agreed. It also intends to keep the remaining 19.99% of the company. According to earlier media reports, Zelezara owes €260mn to banks, €120mn to suppliers and has a further €145mn in unpaid bills for raw materials.

The company now produces goods worth some €340mn, while this could increase to €1.5bn once the plant starts operating at full capacity. Despite its financial and operational troubles, Zelezara still managed to generate €176mn worth of exports in January-November, ranking as Serbia's fourth largest exporter in the 11-month period.