The bailout package of Australian steelmaker Arrium has been rejected by its financial backers. The troubled steelmaker had put forward a $1 billion recapitalization plan proposed by an American firm GSO Capital Partners. The offer had Arrium being lent $922 million over six years and raising $364 million from the shareholders.

In the plan, GSO would have gotten a 15 percent stake in the company, reports The ABC.

GSO is the credit arm of private equity giant Blackstone. The lending syndicate has Australia’s big four banks. It  also includes large Japanese lenders and US private debt holders.

The banks are furious that the GSO deal was made without consulting them and they are mulling legal action against the board for breaking rules.

The creditors are pushing Arrium to run a proper competitive process, reports The Sydney Morning Herald.

Meanwhile, Arrium urged a trading halt on the ASX until it clarifies on its financial future. The steel maker is battling growing debt and low iron ore prices. It will update the market on its talks with banks as the recapitalisation plan involving GSO Capital has been rejected.

The steelmaker’s shares will remain in a halt until the start of trading on April 6. On February 22, Arrium announced that GSO agreed to provide up to $US927 million in funding to reduce its debt and restructure its businesses.

The rescue plan is crucial in ensuring the survival of Arrium’s Whyalla steelworks, one of the key employers in South Australia.
The company employs more than 7,000 people across Australia and 22,000 around the world. Banks are obviously pushing the steel maker to entertain competing for rescue plans.

Meanwhile, SA Treasurer Tom Koutsantonis said the steelmaker’s future is still undecided and the state government is talking to the Federal government on rescuing the steel maker from the present crisis.

“The company, its creditors and potential financiers are still locked in negotiations to resolve the company’s financial situation,” Koutsantonis said. He said the state government’s Steel Task Force is speaking to all parties involved.