August bankruptcy looming for Mexican steelmaker Ahmsa

The possibility of steelmaker Altos Hornos de México (Ahmsa) being forced to declare bankruptcy appears to be growing with the approach of an August 4 deadline to reach agreements with creditors and conclude its bankruptcy process.

A specialized bankruptcy court gave the firm a second 90-day extension period to the company in early May to give it time to hammer out deals on the money it owes, which ends in August.

The company, facing a debt crisis that forced it into insolvency proceedings, requires all creditors to sign the agreement before that date, which would enable its capitalization and subsequent resumption of commercial activities, which have been gradually suspended since late 2022.

And although Ahmsa stated last week in a statement sent to the Mexican stock exchange (BMV) that there was "interest" from new investors and that "all possible options will be explored," both private sector actors and financial analysts see little possibility of the firm avoiding having to declare bankruptcy.

"Unfortunately, what we see in the panorama is that the bankruptcy of Altos Hornos de México is imminent. We don't see any chance for things to be resolved differently in the remaining short period," Carlos Elizondo, advisor to Mexican construction industry chamber CMIC, was reported as saying by local daily Zócalo Monclova.

The main reasons for the lack of optimism are primarily the large company liabilities and the heavy funding required to reactivate its operations, despite the government's real political will to reach agreements, such as with tax authority SAT, for example.

"There have been rumors of the injection of fresh capital through US, Argentine and Chinese investors. Amounts between US$100 million and US$300mn have been discussed informally. However, what we're seeing is that these amounts would only be for renegotiation of debts... it's not enough," Raymundo Díaz, stock market and operations director at Capital Analysts, told BNamericas.

"We as financial analysts are concerned that, in spite of an amount being announced, we see bankruptcy as imminent and closure as totally imminent," he added. 

Capital Analysts has estimated Ahmsa's debts at more than US$1 billion.   

In its latest statement, the steelmaker reported that, in the bankruptcy processes for Ahmsa and its subsidiary Minosa, "active work is being done to search for new qualified investors so that, in the event of a possible liquidation, fresh capital can be obtained to advance with an orderly restructuring and enable the restart of industrial operations."

Newspaper El Financiero reported that the offers Ahmsa has received include one from Chinese company Energy Power, which in December 2023 claimed to have the capacity to contribute US$500mn to reactivate the Mexican firm, but the deal for this financing has not been finalized.

The steelmaker also stated that it continues to work to implement the agreement with an investor who initially presented a financing proposal, subject to resolution of tax credits imposed by SAT and other contingencies, but it did not state who the investor was.

In July last year, US fund Argentem Creek publicly committed to providing US$200mn to reactivate operations at the Coahuila-based steelmaker, but the capital has not yet reached the company.

Díaz said that a strong reactivation of the steelmaker that would allow it to address its three main problems – the workers unions, creditors and the government – would require between US$500mn and US$700mn, not including the reactivation of plant 1, which is crucial to its rolled steel production operations.

"To reactivate plant 1, there needs to be US$1.5bn on the table. So [Ahmsa] needs at least US$2bn as a rounded figure. That US$2bn would be to cover everything: the government, the creditors, and... at least plant 1," said Díaz.

He added that if Ahmsa is compelled to declare bankruptcy, it will subsequently be dismantled and sold off in parts.

"Unfortunately, dismantling the plants will make it cheap to purchase, but only physically, because the debt problem can't be made cheaper. And the problem is that the debt will be larger," added Díaz.

The analyst also underscored that it will be very important to see what the attitude of president-elect Claudia Sheinbaum's next government will be regarding the Ahmsa crisis, which has had far-reaching impacts in its home state of Coahuila. He pointed out that the bankruptcy and dismantling of Ahmsa would increase emigration of local people from the border state, both nationally and to the United States, and would also affect investor sentiment in the region.

CMIC advisor Elizondo said he hopes that if there are investors interested in acquiring the company at an auction after bankruptcy, they will not dismantle it but try to restart operations.

Meanwhile, in another statement previously sent by Ahmsa to the BMV, the company said regarding the parallel bankruptcy proceedings of its subsidiary Minosa that "even though conciliator Víctor Manuel Aguilera submitted the agreement supported by 91.25% of registered creditors on time and correctly, the judge declared bankruptcy based on formal reasons."