Brazil's CSN claims Nippon Steel contracts hurt Usiminas - sources

By Tatiana Bautzer and Guillermo Parra-Bernal

SAO PAULO (Reuters) - An Usiminas (USIM5.SA) shareholder has filed a legal claim alleging that contracts with controlling shareholder Nippon Steel & Sumitomo Metal Corp, which inexplicably rose ten-fold in the past five years, damaged the ailing Brazilian steelmaker's finances, sources familiar with the matter said on Wednesday.

The claim, filed on Monday, questioned the nature of 19 billion reais (£3.7 billion) of so-called related-party contracts between Usinas Siderúrgicas de Minas Gerais SA and subsidiaries of Nippon Steel , said the sources, who spoke under condition of anonymity.

They said the legal action was attached to a lawsuit already filed by minority shareholder Cia Siderúrgica Nacional SA, which wants courts to block a capital injection plan approved by the board of Usiminas last week.

According to the sources, the latest claim by CSN (CSNA3.SA) alleged that Usiminas' outdated plants failed to benefit from expensive contracts for technology and equipment transfer from Nippon Steel.

The lawsuit alleges that Techint Group, the other of Usiminas' two controlling shareholders, allowed Nippon Steel to ramp up the contracts in a quid pro quo for keeping control over the day-to-day management of the steelmaker, the sources said.

Nippon Steel declined to comment, saying only that the company "always brought about technological innovation at Usiminas." Techint had no immediate comment.

CSN declined to comment.

The lawsuit, filed in a court in the state of Minas Gerais where Usiminas is based, underscores efforts by CSN to win greater control over Usiminas, which is succumbing to rising Chinese imports, a steep recession and a rift between Nippon Steel and Techint.

DISMAL PERFORMANCE

Shares of Usiminas were up 3.8 percent at 2.49 reais on Wednesday, outperforming Brazil's benchmark Bovespa index. CSN added 2.1 percent to 12.56 reais.

São Paulo-based CSN owns 14.1 percent of voting shares and 20.7 percent of non-voting stock of Usiminas, making it one of the top four shareholders. The value of CSN's original 3 billion real investment in Usiminas in 2011 has declined 85 percent.

This week, Brazilian antitrust watchdog Cade approved CSN's proposal to appoint two independent Usiminas board members. Usiminas is appealing the decision.

The dismal performance of Usiminas over the past two years is a sign that the strategy followed by Nippon Steel-backed management at Usiminas has failed to help, the sources said.

Among Brazil's listed steelmakers, Usiminas was the only one that posted operational losses in the fourth quarter. The company, with a fast-rising debt, has a limited outlook for raising cash at this point, according to analysts.

(Editing by Daniel Flynn and Tom Brown)