--S&P downgrades ArcelorMittal's ratings to BB+/B from BBB-/A-3 after cutting European GDP forecast
--ArcelorMittal's shares closed down 8.8% on a combination of factors including the downgrade and ECB comments
--ArcelorMittal says it has clear roadmap to improving its financial position
--One-notch credit downgrade equivalent to an additional $100 million in interest expenses, according to CFO
(Updates throughout with additional details.)
By Alex MacDonald
LONDON--A credit-rating downgrade and investor worries over the European debt crisis's impact on future steel demand weighed on ArcelorMittal (MT, MT.AE, MT.FR) Thursday, sending its stock down 8.8% in Amsterdam.
Standard and Poor's Ratings Services downgraded the steel titan's long- and short-term ratings by one notch to junk status, citing weaker-than-expected second-quarter results from the company and a lowered view for European economic growth. The firm has a negative outlook on ArcelorMittal.
The ratings cut comes despite ArcelorMittal's recent efforts to maintain its investment-grade credit rating through the reduction of debt. It has been selling noncore assets and reducing the cost of pension plans in an effort to avoid the one-notch cut, which the company's chief financial officer warned last week would result in an additional $100 million in interest expenses.
Still, while the steelmaker's weaker-than-expected second-quarter results were cited as a factor in the downgrade, the company is also grappling with a tough economy that is out of its control. S&P noted the cut to BB+/B from BBB-/A-3 followed recent downward revisions to its forecasts on European economic growth and steel demand.
ArcelorMittal's stock closed down 8.8% at 11.90 euros a share Thursday, pressured by the downgrade as well as continued concerns over the European debt crisis. Investors were disappointed Thursday by the absence of new stimulus measures from the European Central Bank at the conclusion of a policy meeting.
As the European economic troubles have hurt consumer demand for steel, the world's largest steelmaker has reduced its adjusted debt, a metric that includes liabilities that aren't always apparent on the balance sheet, by $4 billion, ArcelorMittal Chief Financial Officer Aditya Mittal said last week. He noted the company had to reduce its adjusted debt by another $7 billion to keep its investment-grade credit rating, according to S&P guidelines.
"We have noted the recent action by S&P, which has been driven by a change in their view on the macroeconomic environment," ArcelorMittal spokeswoman Nicola Davidson said in an emailed statement. "We have a clear roadmap for improving our already-robust financial position through the programs of management gains, asset optimization and asset disposals, all of which are proceeding according to plan and will further improve our credit ratios," she said.
Nevertheless, S&P lowered its view for ArcelorMittal's credit ratios for 2012 and 2013.
"We now expect that the company's adjusted ratio of funds from operations to debt will be below 20% in 2012 and about 20% in 2013, according to our scenario, compared with our previous forecast of 25% in 2013," S&P said. "This is in spite of our continued assumption that management will likely undertake significant debt reduction over the next six months through disposals and potentially other significant credit-enhancing measures," it added.
The credit-rating company said it could revise the outlook to stable over the next six months if ArcelorMittal achieves its envisaged debt reductions and if S&P deems it sufficiently likely the adjusted ratio of funds from operations to debt will return to about 20% in 2013.
"The proceeds of the disposals on which we understand the company is progressing, will be an important first step toward reducing debt," it said.
Write to Alex MacDonald at [email protected]
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