LITTLE ROCK — Koch Industries Inc., a multi-billion dollar company based in Wichita, Kan., will be the largest investor in a $1.1 billion steel mill that is planned for northeast Arkansas, another investor in the project said Friday.
Big River Steel LLC said Tuesday that it wants to build a steel mill near Osceola that will employ 525 workers who will earn, on average, an annual salary and bonuses totaling $75,000.
George Hopkins, executive director of the Arkansas Teacher Retirement System - which plans to invest $60 million in the steel mill - sent an e-mail message to state legislators Friday telling them Koch Industries will be the largest investor in the steel mill project.
Gov. Mike Beebe and other state officials are to meet Monday with state senators and on Wednesday with House members to answer questions about the state’s role in the project.
“Koch is among the best at finding and deploying in areas where they can make returns for their investors as a private company,” said Hopkins, who said that Friday was the first day he could make the Koch investment public. “They are very detail oriented. They leave nothing for granted. They leave no question unanswered that reasonably should be asked about an investment opportunity.”
Hopkins declined to say how much Koch Industries plans to invest in the Big River Steel project, although he said it will exceed the retirement system’s $60 million.
A spokesman for Koch Industries did not respond to an e-mail seeking comment about the investment.
John Correnti, chief executive officer of Big River Steel and a former top executive with Nucor Corp., declined to comment about potential investors.
“When [the investors] want their names released, I guess they can do it,” Correnti said.
Koch Industries is led by brothers Charles Koch and David Koch, who are each worth $40.9 billion, according to a Bloomberg News ranking of the world’s richest people.
The Koch brothers’ political fundraising group, Americans for Prosperity, spent millions of dollars on advertising in the recent presidential election and donates millions of dollars to conservative causes.
According to the Koch Industries website, the company began as Wood River Oil and Refining in 1940 and has “grown into one of the largest private companies in America” with annual revenue of about $115 billion.
Koch companies include Flint Hills Resources LLC, a chemical and biofuels company with refineries in Alaska, Minnesota and Texas; Koch Supply and Trading, an operator of crude oil and refined petroleum product pipelines; and Koch Fertilizers, which operates nitrogen fertilizer plants.
Koch Industries owns Georgia Pacific LLC and its facilities in Arkansas, including plants in Crossett, Fordyce, Fort Smith and Gurdon. Georgia Pacific says it employs 2,500 people in Arkansas.
Koch Industries also owns and operates three cattle ranches. Forbes says Koch Industries has about 60,000 employees.
Big River didn’t seek out Koch Industries, but Koch learned of the project, investigated it and wanted to invest in it, Hopkins said.
Rep. Bruce Westerman, R-Hot Springs, said if Koch Industries is investing in Big River Steel “it would give validity to the project.” Westerman said that he hasn’t seen financial information about the project.
Outside the Legislature, Westerman works for Mid-South Engineering Co. in Hot Springs, a consulting engineering firm. Westerman often works on projects in the $50 million to $200 million size.
“I look at this like [the Legislature] almost is in the position of a bank board because of Amendment 82,” Westerman said. “Someone is making a proposal on some financing they’d like to have. I think we have to look at it with a very discerning eye and see if this is a good investment for the state of Arkansas.”
Arkansas is proposing to issue $125 million in bonds under the state’s Amendment 82 to help pay for construction of the steel mill. Amendment 82 allows the state to provide incentives for a super project - defined as a project of more than $500 million investment and more than 500 jobs.
The cost of the proposed project for state taxpayers will be about $132 million, a combination of debt service on the bonds, some interest payments and incentives for training, purchase of land and extension of a natural gas pipeline, according to the Arkansas Economic Development Commission.
None of the proceeds from the state bonds will be spent until Big River has spent $250 million of its own money on mill construction.
The state expects that the bonds will be tax free, said Bryan Scoggins, division director of business finance with the commission. But ultimately it will be up to what the bond counsel on the bond issue says, Scoggins said.
A part of the bond issue - $50 million - will be in the form of a loan from the state to Big River Steel. The interest rate on the loan will be the same as the interest on the bond issue, about 3.5 or 3.6 percent if the bond issue were to be executed now, Scoggins said.
The $50 million loan will be for 20 years, the same length of the bond issue, said Grant Tennille, executive director of the commission. The state will pay the interest on the loan for the first two years, and then the steel company will be responsible for the principal and interest on the loan for the remainder of the life of the loan, Tennille said.
Arkansas will give Big River Steel a $5 million discount if it repays the $50 million loan within the first four years. If the company does repay the loan early, the state will use the $45 million to pay off most of that part of the bond issue. The state will still be responsible for payment on the remaining $5 million in bonds, Tennille said.
The $50 million loan will be secured by whatever Big River buys with that loan money, Scoggins said.
The state will have a first mortgage on the $50 million loan, making it a senior lender and not subordinate to another lender, Scoggins said. Should Big River Steel file for bankruptcy, Scoggins said, the state likely would be on equal footing with other major lenders in a bankruptcy case.
Front Section, Pages 1 on 02/02/2013