ArcelorMittal aims to raise $3.5bn in bid to reduce debt

ArcelorMittal planned to raise about $3.5 billion (about R30bn) by selling equal amounts of shares and bonds that automatically become stock to lower its debt, the world’s biggest steel maker said yesterday.

“ArcelorMittal intends to use the net proceeds from the combined offering to reduce existing indebtedness,” it said.

The Luxembourg-based steel maker said the sale, along with other initiatives, would help cut debt to about $17bn by the end of June.

It will sell $1.75bn in common shares and another $1.75bn in mandatorily convertible subordinated notes, according to a copy of the term sheet obtained by Bloomberg. It is the biggest share sale by the company since it sold $3.2bn in stock in 2009, according to data compiled by Bloomberg.

The transaction adds to ArcelorMittal’s efforts to improve its finances after the producer’s credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. It has cut its dividend, disposed of assets and is moving output to cheaper sites to pare $23.2bn of debt.

ArcelorMittal fell as much as 5.8 percent, the steepest intraday decline since October 31, and traded at e12.78 (R144) by 2.19pm in Amsterdam.

Chief executive Lakshmi Mittal said: “We have consistently said that reducing net debt is a priority for the company. This transaction, supplemented by proceeds from ongoing asset disposals, the announced reduction in dividends and continued cost-saving initiatives, will significantly lower our net debt.”

Steel industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices.

European steel makers are grappling with excess capacity that is eroding prices, while they cannot cut operating costs. The region has capacity to make about 210 million tons of steel a year, while demand in a “normal market” is 150 million tons to 160 million tons, according to industry lobby group Eurofer.

ArcelorMittal reported the lowest quarterly profit in almost three years last October and cut its 2013 dividend by 73 percent to save about $1bn.

The transaction announced yesterday would speed ArcelorMittal towards a “medium-term” debt target of $15bn, it said. The Mittal family, which owns about 41 percent of the company, planned to participate in the deals for a total of $600 million, the company said.

ArcelorMittal reiterated its forecast that full-year earnings before interest, tax, depreciation and amortisation would be about $7bn and net debt will be about $22bn.

Goldman Sachs will be the sole global co-ordinator of the company’s offering, while Goldman Sachs, Bank of America Merrill Lynch, Credit Agricole and Deutsche Bank will serve as joint bookrunners. - Bloomberg