THE BILLION-DOLLAR WOMAN.

Maria Silvia Bastos Marques is leading Brazilian steel giant CSN through a dramatic restructuring.

WHEN MARIA SILVIA BASTOS MARQUES BECAME finance secretary of Rio de Janeiro in 1993, the city was a basket case. By cutting pork-barrel programs, renegotiating service contracts and waging war with tax evaders, she boosted the city's reserves from US$5 million to $1.2 billion by 1996, earning the epithet, "the Billion-Dollar Woman' Finance Minister Pedro Malan referred to her as a "force of nature" and Time magazine picked her as the only woman among 12 international "Movers and Shakers" who would most shape the global economy in 1997.

Since then, Bastos Marques has had an even bigger challenge on her hands; leading the turnaround of Companhia Siderurgica Nacional (CSN), Brazil's largest steel mill and one of its largest companies. From the looks of it, she's succeeding.

CSN was founded in 1941 and quickly grew through the late 1970s into Brazil's most important symbol of national industrial power. But it also became a bloated, inefficient arm of the Brazilian government. The gravy train ended in 1989, when incoming President Fernando Color de Mello refused to grant CSN further subsidies. It was eventually sold in April 1993 to a group of private Brazilian industrial companies led by Benjamin Steinbruch of textile firm Grupo Vicunha for $1.5 billion.

Steinbruch kicked in an ambitious restructuring program that focused on modernizing the company's dilapidated equipment to produce a better quality, higher-value mix of products, earmarking an investment of $1.6 billion through 2000. Impressed with what Bastos Marques had accomplished with the city, he brought in the 42-year-old economist in May 1996 to make the plan go.

Steel core. Bastos Marques took over as head of CSN's corporate center, a managerial hub Steinbruch created to centralize the company's operations and oversee its diverse assets. She quickly went to work. Bastos Marques and her team slashed CSN's bloated work force by 18% to 9,000 and raised $1.1 billion in financing to invest in the state-of-the-art equipment that would eliminate production bottlenecks, thus improving productivity. As a result, CSN's gross margins swelled from 25% in 1996 to 38% last year, allowing the company to post record net profits of $360 million, up 65% over 1996.

Now comes the hard part. Over the last few years, CSN has been on a diversification binge, buying up interests in everything from cement companies and mining firms to electricity distributors and hydroelectric plants. Bastos Marques is now dumping that strategy, selling off those far-flung assets to focus on CSN's core steel business to make it bigger, meaner and more efficient in an increasingly competitive world market.

The first step came in April with the sale of its 8.3% stake in cement producer Companhia de Cimento Ribeirao Grande for $39 million. CSN is now studying whether to sell its 8.4% stake in Brazilian mining company Companhia Vale do Rio Doce (CVRD), the world's largest iron ore producer and exporter; its 7.25% stake in Light, the largest energy distribution company in southeastern Rio de Janeiro state (where CSN is based); and its interest in two hydroelectric plants that are under construction.

Ironically, it was Bastos Marques who helped put together the two international consortia that bought control of two of CSN's non-related assets--Light and CVRD--in the first place.

Bastos Marques defends CSN's decision to buy stakes in Light and several hydroelectric plants as "defensive investments." At the time, the state-owned electric energy generation and distribution sectors were going to be privatized, and CSN didn't know what was going to happen to the electric sector. "When we bought a stake in Light, we were dependent on it for 96% of our energy, and so we wanted a say in how that company operated," she says.

CVRD: Sacred cow. The situation has changed, however. CSN recently completed a thermoelectric plant that will supply nearly 50% of its energy needs. Thus, "Our stake in Light is not as strategic as it used to be," Bastos Marques says.

The sell-off of the two hydroelectric plants under construction is not as clear-cut. Bastos Marques says that CSN might sell those stakes if the generation and transmission cost of their energy is greater than the cost of building and running yet another thermoelectric plant, which the mill is thinking about installing. Such a plant would make CSN energy-self-sufficient.

Bastos Marques seems reluctant to sell CSN's stake in CVRD, which has become something of a sacred cow. CVRD is chaired by the 46-year-old Steinbruch, who led the consortium that bought control of the mining giant in a 1997 privatization. Steinbruch is engineering a similar restructuring at CVRD, which plans to concentrate activities around its core business--iron ore--through divestments, particularly CVRD's minority stakes in steel mills. It also owns major direct and indirect stakes in Brazil's biggest mills, among them CSN (in which it owns a 10% stake).

Besides their common ownerships and managements, the two companies jointly own cargo railways and a new container port facility in Rio de Janeiro. Untangling them would be difficult.

But there are plenty of interested buyers who would be happy to take the CVRD interest off CSN's hands. Two foreign mining firms--Anglo American of South Africa and Billiton of England--are both said to be eyeing CSN's stake in CVRD to gain a mining foothold in Brazil, although neither has made a formal offer. Anglo American, which unsuccessfully bid to buy control of CVRD in 1997, is already a partner with CVRD in a planned $1.6 billion Amazon copper-mining project. And Billiton has a stake in two aluminum smelters in Brazil, one of which it co-owns with CVRD.

Brazilian development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES) is pressing CSN to sell its stake in CVRD. Bank officials have argued that ending such cross-ownerships is the first step in the consolidation of Brazil's steel sector. With CSN heading the control group of CVRD, and CVRD owning stakes in all of Brazil's biggest steel mills, CSN is privy to the strategy of its competitors. For example, CVRD has a 23% stake in Usiminas, Brazil's second-largest steel mill and CSN's biggest competitor.

BNDES would also like to see a reduction of multiple stakes held by non-steel-sector players in various steel mills. Previ, the pension fund of the state-owned Banco do Brasil, Brazil's biggest bank, also has significant stakes in all of Brazil's biggest mills and is studying whether to sell off some of its steel-sector investments. It has admitted that it makes no sense to have or increase investments in steel mills that compete with each other.

"Only by untangling steel-sector cross-ownerships and reducing Previ-type multiple stakes in steel mills will the five major Brazilian steel makers be able to consolidate into two or three larger steelmaking blocks," says Maria Luisa Amarante de Andrade, manager of BNDES' mining and metallurgical studies department. "Only by consolidating steel-sector ownership will the sector gain the economy-of-scale-linked efficiencies needed to compete with other far more consolidated steel makers, especially in Europe and Asia."

Even though CSN produces a sizable 4.5 million tons a year of finished products, it is only the world's 36th-largest steel-maker. Usiminas, along with the Usiminas-controlled Cosipa steel mill, ranks as the world's 22nd-largest steelmaker.

CSN's Bastos Marques agrees that the Brazilian steel sector will have to consolidate to be competitive. "[It] makes sense from an economy-of-scale point of view," she says. "Though CSN has low production costs, larger-scale production could lower its high fixed costs."

Last year, CSN tried to gain control of the Acesita, Brazil's and Latin America's largest specialty steelmaker, and Acesita's stake in Companhia Siderurgica Tubarao (CST), Brazil's largest slab producer. But it was outbid by France's Usinor group, the world's fourth-largest steelmaker, which offered $548 million.

BNDES' Amarante de Andrade says the bank is open to offering financing as an incentive to help consolidate the steel sector, as it is already doing with Brazil's petrochemical sector. But Bastos Marques says such financing wouldn't make any difference to CSN, whose strong cash flow position allows it to make acquisitions on its own.

Indeed, CSN is sitting pretty. Unlike other Brazilian companies, the 40% devaluation of the real last January didn't hit CSN particularly hard. Just 90% of CSN's $2.9 billion debt was dollar-denominated, much of it incurred with its CVRD purchase. Of that, only a third was due over the short term, and the company had sufficient dollar reserves to cover debt payments.

CSN also has dollar-based exports, which became more competitive with the devaluation and serve as a natural hedge for its long-term debt. Because of that competitive advantage, CSN plans to export close to 40% of its output this year, versus 27% of its 4.06 million tons last year. CSN is boosting slab imports, in part, to get around U.S. anti-dumping duties on hot-rolled products. CSN has traditionally exported mainly to Asia, though last year Nafta-pact countries and Europe became its leading markets.

"If CSN does decide to sell its stake in CVRD and Light, it won't be because it's in desperate need of capital to pay down debt," says Bruno Pereira, a steel analyst at Rio de Janeiro-based investment bank Banco Icatu. "Given that CSN's short-term debt is close to its dollar-denominated cash levels and that CSN can increase its already considerable cash generation through even more competitive exports, CSN is in sound financial shape."

Bastos Marques isn't waiting for the proceeds from the sale of non-core assets to make big investments. Last year, CSN formed two partnerships, one with German steelmaker Krupp Thyssen Stahl A.G. to build a $250 million, 350,000-ton-per-year galvanizing plant and blanks production center to supply the auto sector, and another with Mexican steelmaker IMSA Aceros to build a $300 million, 450,000-ton-per-year cold-rolled and galvanizing plant to supply the civil construction and white goods sectors. CSN is also planning to build a $500 million, 1.2 million-ton-per-year mini-mill in northeastern Ceara state by 2001, mainly to supply that fast-growing region.

That's not all. Bastos Marques is studying whether to buy or become partners in an integrated U.S. steel mill to roll its excess slabs into value-added hot and cold-rolled products, which are used in construction and the automotive industry This would allow CSN to gain a foothold in a net steel-importing country, where demand for hot-rolled products-which go into non-exposed auto parts like axles--runs high. CSN is also studying whether to build a 3 million to 6 million ton-per-year slab-making plant near the mill in southeastern Rio de Janeiro state, which could help supply a future U.S. mill acquisition. The potential cost: anywhere from $2 billion to $3 billion.

Bastos Marques still has to figure out a way to shed CSN's non-core assets. But don't underestimate her: She's a known workaholic; she tolled away in her CSN office until the day before her twins were born in October 1996. She was back a month later.

Once her job is finished at CSN, what's next? Even she doesn't know. "Right now, I'm happy here, but I don't plan to be at CSN forever:' she says. "First and foremost, I'm an economist, not a steel CEO, and I'll let that qualification lead me to wherever my next challenge lies."