Ilva burns over a billion euros only in 2019 – Business Insider Italia

Probably the former prime minister Matteo Renzi is right when he says that the Indians of ArcelorMittal they had "planned for some time" to leave Ilva. And even more when he explains that the removal of the penal shield is an excuse. On the other hand, margins in the sector are falling and analysts expect a further contraction in profits. More: Ilva drains over one billion euros a year to the Indian treasury. Reason for which Deutsche Bank analysts have welcomed ArcelorMittal's decision: "It is a positive catalyst for accounts"Reads the report published by the German business bank which confirms its opinion on the stock ("buy") With a price target of 18 euros per share.

"While we expect a drop in earnings in the short term – we read – we believe this decision is positive because it removes the enormous weight of Ilva in terms of cash from the ArcelorMittal balance sheet. Due to the uncertainty about Ilva, we cannot exclude that ArcelorMittal should have kept excess inventories to guarantee all supply agreements. This is why we expect the release of huge financial resources by the end of the year ". Translated: according to analysts, in light of the uncertainties and problems related to the relaunch of Ilva, for the Indians the Italian group represented only a weight capable of draining resources that instead, now, could be destined elsewhere.

Also because ArcelorMittal's interest in Italy was certainly opportunistic. If it is true that probably the Ilva was the last major step taken by the Indians towards the consolidation of the European market, it is equally true that it would have been difficult to ignore such an asset because the industry leader – Arcelor – had to make sure it was sold at a reasonable price. A sale would open the doors of the market to a potential competitor.

On balance, however, the calculation of the Indians would have been wrong and the decision to leave Italy would have motivations more financial than political. The numbers lined up by Deutsche Bank analysts seem to leave little room for doubt. ArcelorMittal has acquired Ilva for 1.8 billion euros with a ten-year lease, but the operation immediately pushed up the operating leverage of the Indians at a time when – moreover – the market cycle is suffering. As a result, the Italian asset has become a dangerous brake for the parent company.

Deutsche Bank, therefore, believes that "Ilva contributes to the 2019 accounts with a negative Ebitda of 500-700 million dollars. Considering investments for 400-500 million dollars and a rent of 200 million, all this leads to a cash absorption of 1.1-1.4 billion dollars and a very high resistance of 7-9% compared to current market capitalization. Therefore, we believe that this is a short term positive for the company and for the title. " And indeed the markets reacted positively to the announcement.

At this point the objective seems to be to deconsolidate the Ilva accounts by the end of the year. But there is more, according to analysts at the German bank "ArcelorMittal aims to recover some of the injected funds. And it could go as far as asking over two billion dollars. Even if it could be a difficult and long operation ”. Certainly the experts are convinced that without Ilva and the sale of the most distressed assets at the beginning of the year, the activities of ArcelorMittal in Europe will benefit. As for future developments for analysts, a definitive closure of steel mills in Italy would help to balance the market by reducing the pressure on prices, but an agreement between the government and Indians is not excluded.