MacKay: IDC’s R10bn Amsa rescue - a 171% premium for Mittal, the bill for everyone else

Nearly three times the market price for a steel company on the verge of failing. That is what the IDC appears ready to pay for ArcelorMittal South Africa. Trade specialist Donald MacKay has run the numbers, and they're grim. By his calculations, Mittal’s Luxembourg parent walks away with about R6.16bn, including a 171% premium on its shares. The IDC’s R2bn in earlier loans is never repaid. Taxpayers take on the losses, the liabilities and a R925m competition fine that is still owed. Downstream manufacturers, who employ 90% of the people in steel, keep paying more for their steel. If Mittal couldn’t make Amsa work, why could anyone believe SA’s incompetent state apparatus would? Or are taxpayers going to be levied with still more bailouts as per Eskom, Transnet and SAA. .By Donald MacKay*.I think the Industrial Development Corporation’s (IDC) mooted acquisition of Amsa, especially at the published price of R10 billion is a bad deal, unless your surname is Mittal. Here is why.ArcelorMittal South Africa (Amsa) has been the biggest beneficiary of duty protection in the country. Between 2024 and 2026, Amsa has brought one duty-increase application, four safeguard applications, and four anti-dumping applications, with some of these overlapping on the same products. They have also been the biggest winner of the International Trade Administration Commission’s (ITAC) big steel tariff review. Itac has also proposed import controls on certain steel products, which will ration import volumes. Barring a short list of exceptions, almost all of the protection has been upstream.Amsa gets duty protection, and their clients pay more for their steel. I call this shift in value from consumers and downstream manufacturers trickle-up economics, and politicians love it. Economists don’t, and for good reason. It is a particularly bad idea to raise tariffs on upstream products because it makes everything downstream less competitive (rather than make a steel pipe, rather import it because the duties on steel pipes are now much lower than the duties on the steel used to make it). Play this out for long enough, and you have no customers left. Yet for this deal to work in the short term, it will require ever-higher levels of protection. This is Amsa being subsidised by their customers.The moment Amsa is owned by the IDC, it will become the recipient of eternal taxpayer bailouts. Bear in mind, consumers already pay more for everything containing steel and will now also pay more by spending tax money on this company. As SAA shows, there is no limit to how much good money politicians can throw after bad, and this will be no exception. However, it will decimate the downstream sector, where 90% of the jobs exist.On plausible assumptions, ArcelorMittal S.A. (the Luxembourgish holding company) could receive about R6.16bn in equity proceeds and debt recovery, while the state takes on the operating risks and unresolved liabilities. Amsa closed at R1.06 per share on October 20, the day before the possible deal was announced, giving its issued ordinary shares a market value of R1.206bn. Based on the holdings disclosed in December 2025, Mittal’s 67.79% interest was worth R817.8m and the IDC’s existing 8.18% about R98.6m. If R3bn buys all the ordinary shares not already owned by the IDC, the implied price is R2.87 a share. Mittal would receive R2.215bn for its equity, R1.397bn above its pre-report market value, a premium of approximately 171%. This is an astonishing premium given the IDC’s earlier support to Amsa. It advanced R1 billion in 2024 for working capital and another R2.063 billion during 2025. Amsa secured the original R1 billion facility and partly repaid it, with R690m remaining at the end of June 2026. Amsa says the later R2.063 billion loan will not be repaid in the foreseeable future and now almost certainly never. The IDC doesn’t appear to have secured these loans with options on equity, or possibly anything at all.In June, liabilities exceeded assets by R1.659bn. Amsa reported an EBITDA loss of R409m and free cash outflow of R1.186bn for the first six months of 2026. Mittal group loans totalled R6.476bn, including R5.476bn in subordinated shareholder lending and a R1bn unsubordinated working-capital loan. Banks were owed R3bn, the IDC R690m and another lender R55m. Don’t, however, think that the R2.063 billion was paid off. It wasn’t. Rather than record this as a liability in Amsa’s financials, it was accounted for as deferred income because repayment was conditional. The IDC’s R2.063bn funding covered operating costs, finance costs, and capital expenditure in Amsa’s Newcastle operation. Repayment, with interest, requires agreement between the IDC and Amsa and is conditional on the Longs business being financially solvent and liquid, generating positive earnings before interest, tax, depreciation and amortisation, and producing positive cash flow. The Newcastle operation was subsequently closed, so those conditions will never be met. Assuming the reported R7bn becomes a debt settlement pool, the banks and other lenders will be paid in full, and IDC, of course, receives nothing. That leaves R3.945bn for Mittal’s loans. Together with R2.215bn for its shares, Mittal’s combined proceeds would be R6.160bn.If the R1bn unsubordinated parent loan is paid first, R2.945bn remains against the subordinated claim. Mittal would take a R2.531bn haircut on its total loans, recovering about 61%, but that R1.397 billion equity premium would reduce the pain substantially. But it doesn’t end there.In 2016, Amsa and the Competition Commission agreed on a R1.5 billion settlement after finding anti-competitive behaviour. In June 2026, R925 million of this remained outstanding, and it’s fair to assume that this never gets paid if the IDC ends up as the sole shareholder. If the obligation survives in a state-controlled Amsa, the public will pay the fine, the very people harmed by the anti-competitive behaviour.There may be a national economic case for preserving specialised steelmaking, but that case is yet to be convincingly made. Maybe its “strategic importance” commands a premium, although this valuation remains unexplained. We are, after all, approaching three times the market price for the purchase of a company which is on the verge of failing. The size of the discount usually occupies negotiators in such a deal.If one of the world's largest steel producers can't make Amsa succeed in South Africa, how on earth will the IDC do it? Yes, they promise to bring in professional management (which Mittal already has in place), but this doesn’t fix the underlying business model problem. To survive, Amsa has to make a profit, a challenge it is yet to meet. Amsa closed its Newcastle operation because it could not compete against the subsidised steel made from scrap metal. This fact won’t change when the IDC takes over, but the government also won't remove the support given to the mini-mills, conservatively estimated at R4 billion per annum. Doing so would cause most, if not all, of them to collapse..Read more:.AMSA, IDC reopen deal talks with non-binding offer for mills.The same applies to future protection. Public ownership makes import relief for downstream users politically harder because it reduces Amsa’s margins, so downstream fabricators will recover even more costs through higher steel prices. What will government do? Will the government raise tariffs across the entire steel value chain, raising the cost of everything that contains steel? Certainly, the IDC won't bail out every downstream steel company, so what happens when they can’t buy affordable steel? .*Donald Mackay is the CEO of XA Global Trade Advisors, a firm that advises on trade remedies, tariffs and customs. He is one of South Africa’s leading commentators on trade policy and the steel sector, and he spoke at BizNews Conference #8..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

MacKay: IDC’s R10bn Amsa rescue - a 171% premium for Mittal, the bill for everyone else

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