Brazilian crisis clouds Corus merger

THE £3 billion merger between Anglo-Dutch steelmaker Corus and Brazilian steel group Companhia Siderurgica Nacional could be threatened by the growing financial crisis in Latin America's biggest economy.

Under the proposed deal Corus will hand over control of more than a third of the enlarged business to the Brazil-based Steinbruch and Rabinovich families.

The new company will be 62.4% owned by Corus. Corus would then be the world's second-largest steel producer with access to iron-rich ores at the Casa de Pedra mine in Brazil, where production will be expanded threefold. This week, however, the Brazilian currency has fallen to a record low, hit by concerns about the country's ability to conclude a fresh loan deal with the International Monetary Fund and fears of political instability ahead of elections in October.

At the time of the proposed deal in the middle of last month, Tony Pedder, chief executive of Corus, said he believed it was 'financially robust'. CSN has debts of £1.4 billion, mostly in foreign currencies. There are fears that Brazil may default on its $297 billion (£189 billion-debt mountain, just as the Argentinians did earlier this year.

Corus admits it has been keeping a watching brief on the Brazilian economy. Mike Hitchcock, Corus media head, said of the proposed deal: 'It is only a head of agreement at the moment and part of the conditions of that were that we would keep Brazil's economic condition under review. We would hope not to renegotiate the deal but we have to keep an eye on all conditions, not only those in Brazil.'

A circular is due to be sent at the end of this year with shareholders asked to approve the deal in the first quarter of next year.